Nick Bruining: More industry cost burdens will put financial advice further out of reach for those in need
Financial advice costs are set to soar after the industry was asked to stump up for higher regulator fees, putting quality advice even further out of reach for many.
Financial advice costs are set to soar after the industry was asked to stump up for higher regulator fees which, in some cases, have more than doubled since last year.
The Australian Securities and Investments Commission’s industry funding model essentially recovers the cost of regulating the industry from the participants themselves.
The corporate watchdog last week announced estimates for the 2027 financial year.
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By continuing you agree to our Terms and Privacy Policy.A financial planning practice with five practitioners providing personal financial advice will be forced to pay $1500, plus $3037 per financial adviser — or a total of $16,685.
Financial advice firms that provide general financial advice only will see their costs skyrocket by nearly 130 per cent — up from the current levy of $4854 to $10,979
Inevitably, these fees will be passed on to consumers.
Certified Independent Financial Advisers Association president Chris Young said the viability of many financial advice firms was now in question.
“Simply to open the doors on July 1, a small practice is looking at fees linked to the regulations alone, easily approaching $70,000,” Mr Young said.
“That’s before you’ve paid a cent for rent, staff, resources or marketing.”
In addition to this levy, financial advisers are required to contribute to a compensation scheme of last resort, whereby consumers are compensated for poor financial advice that results in loss.
While all advisers must hold professional indemnity insurance, in some cases the policy limits for claims are inadequate and the compensation scheme provides limited amounts for affected consumers.
The 2027 levy was originally estimated to be $137.5 million, but that was recently revised upwards to $198.1m.
Given that the total number of financial advisers has not recovered since an exodus was triggered by the Hayne royal commission in 2019, the funding burden will fall on the remaining 15,000 registered financial advisers. That works out at about $13,200 per adviser.
The massive hike in the compensation levy is due in part to claims lodged by the victims of Dixon Advisory and First Guardian and Shield Master Fund.
Financial adviser Andy Semple said these costs represented an existential threat to some financial advice businesses.
“The small firms that are copping the biggest relative hit are the ones least able to absorb it,” Mr Semple said.
“They don’t have deep pockets. They’re just trying to look after their clients while the system piles cost after cost on their heads.”
These mandatory levies are only part of the story for most firms.
The minimum premium for indemnity insurance sits at about $10,000 a year for a small single-person practice. A larger firm with, say, five advisers, will typically be paying about $30,000 a year.
A financial advice firm must be fully audited annually, with accounting standards similar to those for a publicly listed company. Combined, these costs can easily exceed $15,000 a year
“Advisers must also complete at least 30 structured hours of continuing professional development and need to regularly update software, research and cybersecurity systems,” Mr Young said.
“All of this goes on in the background, but costs money.”
It has meant that for many clients, seeking financial advice has become too expensive.
“There has to be a trade-off between the fees a consumer is expected to pay and whether they can actually afford it,” Mr Young said.
“The real tragedy is that the more complicated financial advice matters often involve people with relatively modest resources and income, where professional comprehensive financial advice is now financially out of reach.”
