FAAA urges government stop profiting from ASIC in pre-budget requests

The Financial Advice Association Australia (FAAA) has published its pre-budget submission, in which it pitched six ideas that it believes “will have a positive impact on the financial future of Australian consumers by reducing the cost of professional financial advice”.

The six ideas include implementing a fairer Australian Securities and Investments Commission (ASIC) funding levy, managing costs of the Compensation Scheme of Last Resort (CSLR), enhancing the tax deductibility of financial advice, enabling financial adviser access to the ATO portal, providing more support for advice education and exam price relief, and a reversal in the proposed changes to reduced input tax credits (RITC) for advice fees.

The FAAA has for some time lobbied the corporate regulator and the government on the ASIC levy. In this submission, it reiterated that a substantial increase in the per-adviser amount has meant that advisers have had to increase the cost of their services, which has made advice more unattainable for Australians.

Another concern with the levy, the group said, is the underlying “moral hazard” inherent in a model in which the vast majority of advisers must pay for enforcement action against a small number of non-compliant businesses, as well as fraudsters and unlicensed operators.

“The problems with this are compounded by the fact that even when ASIC takes successful action against non-compliant businesses and is successful in having costs and fines paid, no reduction is made to the costs advisers must pay,” the FAAA said.

“ASIC takes no risk by instituting enforcement action, because advisers fund all enforcement whether successful or not, and have no say or insight into how their money is spent.”

Moreover, the FAAA highlighted that the government currently makes a “substantial profit from ASIC” and recommended that this change to ensure that proceeds of successful enforcement are used to offset costs before advice businesses are charged.

The FAAA also wants to see the government review and implement the changes to the ASIC industry funding model (IFM) recommended by Treasury in its recent review before finalising next year’s levy, as well as more disclosure from ASIC regarding how its funding is spent.

Finally on its ASIC-related asks, the FAAA raised an interesting point regarding the government’s proposal to give banks, life insurers, and superannuation funds expanded advisory powers. Namely, the group recommended that ASIC enforcement costs against these individuals must be “clearly allocated” to the sector of the employing entity.

A fairer CSLR

Moving on, the FAAA asked the government to ensure “current compliant financial advisers” are not paying historical failures under the CSLR by covering any shortfall that could emerge for costs above the $250 million cap for matters received by the Australian Financial Complaints Authority (AFCA) before 8 September 2022, and any Dixon Advisory complaints received after 7 September 2022, that are not yet finalised by the current 30 June 2024 deadline.

Namely, the concern broadly is that the cost of CSLR will, over time, become prohibitive for advisers to sustain.

The group also asked the government to “effectively manage the ongoing costs of the scheme by ensuring responsible firms and their insurers are pursued to the full extent of their resources, before the broader profession is charged for compensation”.

On the matter of tax deductibility of advice, the FAAA said the government should act to make the cost of financial advice provided by a professional financial adviser fully tax deductible to consumers.

“Such a concession could be effectively targeted to those with the most need, and budget costs managed, in a number of ways – such as by introducing the deduction with a capped amount (such as $3,000) that could be claimed in a single year,” it said.

Moreover, the group wants to see advisers gain access to the ATO portal via a new, read-only class of access.

“Access would be granted in a similar way to the current process for tax agents, in that the portal would have a link to the ASIC Financial Adviser Register, and clients could select their adviser from this list and authorise their access,” the FAAA said.

“No additional functionality is required within the system – advisers only require access to the information and do not make any changes (which is the domain of Tax Agents).”

Fee-free study

On education support, the FAAA argued that a significant factor in the recent steep rise in the cost of financial advice has been a recent and dramatic fall in the number of licensed financial advisers.

“Increasing the supply of financial advice by increasing the number of professional financial advisers, is one of the critically important factors in sustainably reducing the cost of high-quality financial advice to consumers,” it said.

With only 381 new advisers said to have joined the profession in 2023, the FAAA said “something must change”.

As such, the FAAA has recommended that the government make HECS-HELP relief for those students undertaking an approved financial planning degree in the form of a fee waiver for students in their final year.

“The cost to students of the ASIC-administered financial adviser exam should be substantially lowered, in line with the much lower cost of administering the exam since the move to multiple choice only,” the FAAA also said, while suggesting added “migration points” to overseas students who complete an approved financial planning degree.

“This would not only increase the numbers attempting the qualification, but also improve the cultural and linguistic diversity of the financial advice profession.”

Finally, the FAAA said the government should take the necessary action to preserve the existing industry practice and treatment with regards to RITCs on advice fees, after the ATO announced that RITCs will no longer be available after 1 April.

This announcement overturned a long practice of funds claiming an RITC credit on financial advice fees, the benefit of which is reimbursed to the client.

According to the FAAA, by preserving the industry practice, the government will help avoid yet more increases to the cost of financial advice to consumers.