AFCA consults on proposed funding model

The Australian Financial Complaints Authority (AFCA) is consulting on a proposed user-pays funding model for complaints in which 98% of investment and advice members will only pay the annual registration fee of $376.

AFCA said the model would reduce the burden on small members like financial planning firms and brokers, as well as other less frequent users of the scheme, through its user-pays approach and the buffer of five free complaints.

AFCA chief operating officer, Justin Untersteiner, said the model would minimise the cross-subsidisation across sectors that had been occurring under the interim model put in place at AFCA’s inception in 2018.

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He said this was because it considered both the volume of complaints registered for a firm along with the time taken to resolve those complaints.

“Our user-pays approach incentivises firms to use internal dispute resolution to decrease complaints to AFCA. Firms can absolutely significantly reduce their fees and charges through improvements to their own processes and procedures,” Untersteiner said.

Under the proposed model, most of the 3000 approximate investment and advice members (94%) would either experience reduced or the same total annual fees, with only 6% seeing an increase (largely due to their higher relative complaint volumes).

The complaints authority currently had many investment and advice members who did not hold a licence but were registered as a credit representative. The vast majority of credit representatives would pay only $66 a year under the proposed model.

AFCA chief ombudsman and chief executive, David Locke, told members: “It’s a fair, transparent and equitable model that is supported by strong data and modelling.

“We have listened to what you have told us over the past few years and this has been used to design a model that rewards good performance and early resolution, and apportions fees fairly based on use of AFCA’s services.”

Under the user-pays model, firms would have control over the fees they paid by managing their complaints well, he said.

The proposed funding model included a single registration fee, a simplified complaints fee structure and introduced five free complaints per year to all members. It removed the superannuation levy and would bring superannuation funds under the same fee structure as other AFCA members – with a positive or neutral impact for most superannuation members.

Under the proposed model, 66% of fees would be recovered from the 2.5% of AFCA’s members that represent 66% of all complaints received by AFCA.

About 90% of AFCA members, covering banking, insurance, superannuation, investment, and advice, would see a positive or neutral impact on total cost with one in five experiencing a decrease in fees.

Overall, 95% of licensed financial firm members of the AFCA external dispute resolution scheme would pay only their annual registration fee each year, currently estimated to be $376 for the coming financial year. Among authorised credit representatives, 99.9% would pay only $65.98 annually – steady with their annual membership levy.

The proposed user-pays model emerged from a study of AFCA’s funding by PwC Australia that incorporated feedback from members, including submissions made to last year’s Treasury-led Independent Review of AFCA.

AFCA had been seeking feedback on the proposed model from firms and industry groups in recent weeks and had held the first of five member webinars this week.

AFCA would be taking feedback from members during a six-week consultation period that was expected to end on 22 April. The model would then be put to AFCA’s independent board in May, for a decision. Any changes would take effect from 1 July, 2022.




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Here are some other ways AFCA could reduce the burden on small financial advice firms:
- Stop openly touting for consumers to make vexatious complaints
- Exercise fairness and impartiality, rather than imposing biased star chamber judgements
- Remove yourself from financial advice regulation altogether, and leave it to the supposed "Single Disciplinary Body"

AFCA is one of the key contributors to the current mess of bad regulation that puts professional financial advice out of reach for most consumers. AFCA's cost impost goes well beyond their direct fees. It's the cost of all the excessive compliance processes advisers have to follow to protect themselves from AFCA bias and persecution, and the cost of AFCA induced elevated PI premiums. For honest advisers unfortunate enough to be snared in the AFCA web, it is also the financial, time, emotional, and reputational cost of defending a vexatious complaint in an environment that is geared to persecuting you.

Your statement about "openly touting for consumers to make vexation complaints" is true. I heard reps from AFCA once presenting to members of the public. I felt I was at a sales presentation. Have also experienced it first hand where the panel member literally laughed and says the compliant is a joke and has no chance (there words) but then turned around and said to the person you've got nothing to lose it's free.

per the comment above, AFCA internally think their sh$$t does not stink. Thankfully a recent treasury review and a lost Federal case meant there was a bit of reflection in the ivory tower. The case managers are so out of touch with the realities of a small business, and franky, $10k in fees for a frivilous complaint is crushing for a small advice business. The mandated review on fees helps, however it is still a conflicted model. Copy the NCAT and make complainants pay an admin fee to lodge - even $100 to lodge, and $100 to get a Recommendation review by an ombudsman. hardly prohibited costs when a FP may cop $10k.

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