The vast majority of financial advisers who do the right things should not be made to subsidise those who do the wrong thing under the user-pays model devised to fund financial services regulation, according to the Association of Financial Advisers (AFA).
In a submission filed in response to the Australian Securities and Investments Commission’s (ASIC’s) Cost Recovery Implementation Statement, the AFA said it believed the new regime should be on a genuinely user pays basis, “as opposed to the proposed model where those who do the right thing, subsidise those who do the wrong thing”.
The AFA pointed to a table within the ASIC document noting that of the total $26 million being spent on licensees that provide personal advice to retail clients, a total of $12.2 million (46.7 per cent) was being spent on surveillance and enforcement.
It said that when what would appear to be fixed costs such as “governance, central strategy and policy, and central legal functions”, IT support, operations support, property and corporate services and capital expenditure were excluded, this increases to 89.7 per cent of the variable cost.
“Clearly the vast majority of costs for licensees providing personal advice to retail clients is driven by those licensees doing the wrong thing, yet this cost is being subsidised across all licensees and all financial advisers,” the AFA submission said.
It said on this basis, the AFA would like to see more visibility on the cost of major remediation/enforcement programs that ASIC was undertaking.
Elsewhere in its submission the AFA pointed to the additional cost being imposed by the funding regime and said this, along with other recent and expected increases “will make it more costly to provide financial advice, which means that either these costs need to be passed on to clients or less businesses will be in operation”.