Recent regulatory changes threaten to intensify what many believe is already a perfect costs storm that is hitting accounting practitioners.
At a glance
- Some multidisciplinary practices will streamline their offerings.
- Many sole practitioners, including advisers, may be forced out of business.
- Some firms are outsourcing certain functions to save.
- Higher costs will be passed on to clients, especially as the demand for financial advice services increases in tandem with our ageing population.
None of the 76 recommendations in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry targeted the accounting profession specifically, but many have direct consequences for multidisciplinary accounting firms if implemented, especially those providing financial advisory services.
With a large number of firms already contending with increased registration, compliance and operational costs, the prospect of even further increases in running expenses could force some practices out of the market or into mergers. Many firms are already outsourcing some functions to save on staff expenses.
Paul Drum FCPA, CPA Australia’s general manager, external affairs, says the cost imposition on practices has been rising consistently, with the move by the Australian Securities and Investments Commission (ASIC) to a full funding model having led to a substantial increase in registration charges.
Practices with a limited Australian Financial Services Licence (AFSL) now must pay a A$1500 annual fee to ASIC for holding their licence, and a graduated levy of A$934 for each person authorised under the same licence. Tax and BAS (business activity statements) agents have also been charged higher registration fees.
The ASIC registration fee for self-managed super fund (SMSF) auditors has been increased from A$107 to A$1927, and ASIC imposes an A$899 charge to cancel an SMSF auditor registration.
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“So they get you hooked onto paying an annual fee to be one, and then you’ve got to pay an exit fee to stop being one,” Drum says. “It’s unusual, to say the least.
“The registrations are a privilege in that they enable someone to undertake certain work that others can’t. We get that. But we’re not sure that the registration costs bear any resemblance to the cost of providing that service.”
Higher compliance costs for accounting firms
Added to registration fees are higher compliance costs for firms offering financial advice, including high educational costs associated with the new Financial Adviser Standards and Ethics Authority (FASEA) regime, and ongoing expenses linked to bridging course requirements and continuing professional development (CPD) that can cost tens of thousands of dollars a year.
Furthermore, most practices are already contending with significantly higher professional indemnity insurance costs as a result of a decrease in market competition and a rise in claims and legal actions against financial services companies. In some cases, premiums have more than doubled despite firms never having been involved in a claim.
Service offerings under threat
“For over two decades, CPA Australia has been telling members that … multidisciplinary practices are the way of the future,” Drum says.
“But some of those multidisciplinary practices are now going to be harmed. They’re always looking at their costs versus revenue and thinking about ‘what services do we really want to provide?’
“What’s unprofitable, they will just stop providing those services. That goes to the problem about market concentration and not being able to find a service provider when a consumer needs one or wants one.”
Ted Turner, executive director and partner at Ashford Accountants, notes that his firm has needed to offset rising operational costs by outsourcing certain functions and by investing in more efficient technology solutions.
“The only things we can really control are staff and technology,” says Turner. “With every pressure point you see a bit of a reaction. A lot of accounting practices have responded to the cost of wages by outsourcing.
“No matter what the accounting public practice is, whether or not you’re a large-sized one or a medium-sized one, it’s a consideration that’s creeping in.”
Turner says technology systems have been beneficial in helping to streamline some costs.
“I think with the revolution that’s sort of happening in accounting, with cloud-based accounting software such as Xero and all that sort of stuff, if accountants are proactive these should translate into savings.
“The days of having to go out and see clients all the time are over, as most of the work can be done remotely. Integrated computer systems also mean you can bring down the cost of taking on clients.”
A high price on advice
Keddie Waller, CPA Australia’s manager – public practice, says ASIC’s move to a full funding model coupled with other announced regulatory changes, as well potential changes arising from the Royal Commission, are adding to complexity and costs and pushing advice out of the reach of a lot of people.
“I think the thing that the government and Treasury forget in looking at a lot of these regulations and new requirements [is], they often fail to connect the dots that they’re hitting the same person a lot of the time,” Waller says.
“If you’re a professional accountant and you’re providing some personal advice to your clients, even if it’s limited in super, plus you’re a tax agent, there’s three different layers of legislation and three different costs there.”
Where costs are rising
ASIC has increased its licence registration fees and levies sharply for tax and BAS agents, auditors and financial advisers.
Insurers have, in some cases, doubled their professional indemnity insurance premiums.
FASEA educational requirements will force many practitioners to pay for full degrees or individual units.
Practitioners grapple with skyrocketing PI costs