‘Significant’ reductions only way to lower regulatory costs in advice sector

With total costs almost doubling in the last few years to $59.59 million — well over a 100 per cent increase — AFA’s  general manager of policy and professionalism, Phil Anderson, said the majority of the increase has been in enforcement and the related increase in indirect costs.

AFA’s own analysis found that the cost of enforcement between the 2018–2019 financial year and 2020–2021 more than trebled from $9.5 million to $31.4 million. However, Mr Anderson told ifa he expects that figure to drop in the coming years.

“Presumably, the costs of enforcement will fall in the next couple of years as all the remaining royal commission matters and resultant remediation is finalised,” he said.

“With so much reform impacting the financial advice profession in recent years, we expect that this is also a driver of some costs.

“The big question is what is a reasonable steady state level of expenditure that reflects an efficient outcome for a sector that has largely transitioned into a profession? It would be good to know what ASIC thinks is achievable. However, we think that it should be possible to reduce it well below the level of 2018–19, particularly in the context of the reducing number of advisers.”

Meanwhile, since 2018–2019, the number of financial advisers in Australia has dropped from 25,000 to now below 20,000.

“Seemingly, the only way to achieve a genuinely sustainable cost structure is to drive significant cost reductions,” Mr Anderson said.

“It is, of course, interesting to contrast the cost applied to financial advisers who provide personal advice to wholesale-only clients, which has been less than $1 million for the last three years.

“That might be an unrealistic goal; however, it would be great to move materially in that direction.”

Mr Anderson added that he is hopeful the 2022 review of the funding model, to be undertaken by the Treasury, will form a solution that is “fairer and is conducive to a growing profession”.

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.