ASIC’s new levy could reduce licensee offerings

Financial advice licensees who cannot afford the multiple new levies, imposed by the corporate regulator, may need to consider reducing the services they offer, according to The Fold Legal.

Since 1 July, financial advice licensees, insurers, and businesses regulated by the Australian Securities and Investments Commission (ASIC) has now been subject to the ASIC Supervisory Cost Recovery Levy Act 2017 to fund ASIC’s work.

In a blog by the law firm, The Fold Legal said it was a cost previously borne by tax payers and that the levy would be changed annually. It could either be a flat rate, a graduated or variable rate, or a combination of both.

The levy would be calculated on which sub-sector the business operated in and if a business whose products or services fell within several sub-sectors, it must pay the levy for each sub-sector.

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“Businesses who can’t afford multiple levies may need to consider reducing the services they offer,” the blog said. “Although the levies add a new barrier to entry to the market, those who can afford to pay multiple levies can have a presence in several markets and potentially expand their services.”

The Fold Legal’s solicitor director, Jaime Lumsden Kelly, told Money Management it would depend on the licensee on whether they would absorb the cost of the levy or pass it onto clients.

“Smaller licensees may want to absorb the cost, where they have cost-sensitive clients, but may have limited capacity to do so. At the other end of the spectrum, the decision by some banks to pass on the cost of the bank levy demonstrates an appetite at the larger end of town to pass costs on whenever possible,” Kelly said.

“Ultimately smaller licensees may be caught on the prongs of losing clients if they pass costs on, but not being able to absorb costs if they have been running lean.”

Kelly noted that for the most part levies would not duplicate, and that for this reason she doubted it would have any impact on smaller licensees offering holistic advice.

“For example, there is only one fee for financial advisers who provide a personal advice service on investment and life products. The only other category they could fit in is the managed discretionary account category—so financial planners who run their own MDA [managed discretionary account] service may have to pay two levies. In most other cases, however, licensees will only be liable for one levy,” she said.

“Reducing services would also mean needing to vary the licence to remove the offending authorisation—for example, to remove the MDA authorisation to avoid the levy.

“A licence variation itself can be a costly exercise, and even then, ASIC’s levy will not reduce until the following year. This might motivate licensees to more effectively market a service, though, and expand their client base.”

She also said that licensees who offered holistic services were walking on dangerous ground.

“This is because relatively few clients can afford a holistic service, which puts the adviser immediately in danger of breaching the best interests duty by overservicing,” Kelly said.

“For a large part of their client base, planners would be better off offering scaled advice in a staged manner – for example, identifying upfront all the clients goals and objectives, then identifying the order of importance of those objectives, and then advising on each issue in succession, starting with the most critical issues.”

The blog said ASIC would notify entities what they had to pay and would have 30 days to pay once they received the notice. A 20 per cent penalty payment would apply to business who failed to pay the levy on time. Administrative action and/or criminal charges could be taken against businesses who did no pay within 12 months.

“Where the levy is calculated on the basis of information that businesses provide to ASIC, e.g. the number of authorised representatives, businesses who make a false or misleading statement to ASIC may be required to pay double the shortfall,” it said.

Source: The Fold Legal