AFSLs notably missing from cost of advice discussions

While the government has set out to reduce the cost of advice and improve its accessibility, the advice industry has put the blame on the Compensation Scheme of Last Resort (CSLR) levy, increases to the Australian Securities and Investments Commission (ASIC) levy, as well as excessive red tape and compliance requirements driving up operating costs.

However, on the latest episode of the Challenging the Standard in Financial Advice podcast, PlanningSolo founder and podcast co-host Jordan Vaka, noted the role of the Australian Financial Services Licence (AFSL) system in driving up the cost of advice, owing to it being one of the largest expenses of an advice firm.

“This is not an indictment of individual people, individual licences. This is a structural and systemic issue that suppresses, infantilises and increases the cost of financial advice in Australia,” Vaka said.

“For the QAR to talk all of a sudden, pivot to affordability of advice and never touch on the cost of licensing, is a complete joke. Makes the whole thing irrelevant to me. It dismisses the entire discussion.”

To put the cost in perspective, Vaka outlined the impact of the Australian licensing system using an approximate average of licensing fees.

“On a very broad level, if you just assume that every single adviser in the country, the 15,500 advisers, is costing $50,000 a year in licensing costs. That is $775 million in licensing costs that are just being paid up to licensees,” he said.

“Now, if you change that instead, let’s be generous. So, take $25,000, that’s $388 million being spent in licensing costs … Where is that money going? It’s to pay payroll, management, employee systems, for this body that sits between us and doing our job properly.

“Now that cost then needs to get passed on to clients or the advisers cop it. That drives me nuts.”

Comparatively, the CSLR has a subsector cap of $20 million and a total annual cap of $250 million, while the 2023–24 ASIC levy totalled $48.4 million, both of which have been put on blast for their role in driving up the cost of advice.

While Vaka’s dislike for the licensing system is not new, explaining in a previous interview with ifa that he was known for this being his “soapbox” issue, the lack of attention on the subject throughout the cost of advice discussions is notable.

“When I was an adviser through a big licensee, they always got paid first, and fair enough, that’s the commercial arrangement. But why are they there?” he said.

“I am a qualified, functional, capable, competent professional striking an arrangement with my client directly to help them with advice, but now I’m paying some third party for the right to do so.

“It’s ludicrous, it’s stupid, and it’s expensive … Nobody has been able to explain to me why that is OK.”