Financial planning consumers will be the ultimate victims of any increased costs flowing from the introduction of the Australian Financial Complaints Authority (AFCA) and the imposition of increased monetary claim limits, according to the Financial Planning Association (FPA).
Responding to the Treasury discussion paper around transitioning to the new one-stop-shop external dispute resolution (EDR) body, the FPA said it was concerned that increasing the monetary limits would increase the potential liability of financial service providers (FSPs) which would flow onto increased costs for advisers.
“Given that determinations can’t be appealed by the FSP, any limit increases should be incremental to allow the industry time to adjust,” it said.
The FPA said increasing limits would increase professional indemnity (PI) insurance premiums at a time when adviser costs were sharply increasing.
“Further increases will be acutely felt and will be passed onto consumers or, more likely, absorbed by business at an already challenging time,” the submission said.
The FPA said it was concerned about the effect that increasing limits would have on professional indemnity insurance and that increased premiums would be passed onto advisers at a time when a large number of additional costs of regulation, each substantial, were being, or proposed to be, imposed on advisers.
The FPA then outlined those increased costs citing:
· ASIC Supervisory Cost Recovery model – approximately $4,000 to $5,000 per adviser in 2018 for small licensees;
· ASIC fee-for-service costs – currently unknown; significant increases previously proposed;
· Funding the new Financial Advice Standards and Ethics Authority (FASEA) – unknown;
· Financial advice registration exam – unknown;
· Adviser Code Monitoring Scheme – unknown;
· Compensation Scheme of Last Resort – unknown;
· Tax Practitioners Board (TPB) – $400 per business plus $400 per adviser;
· ASIC Financial Adviser Register – currently $0 to $46 per adviser; and
· Cost of meeting new education requirements – varies depending on current qualifications.
“It seems likely that industry will need to absorb at least substantial part of these costs, which given the scale of increases will make running a business particularly challenging. This challenge is especially large for small providers,” the FPA said
