As the Financial Services Reform Act (FSRA) is now law, it is time for the industry to react and start putting it into practice, which raises the question of what are the costs involved and who will actually pay for it?
From a regulatory stand point, the Australian Securities and Investments Commission (ASIC) is funded by the Federal Government, which in the most recent budget allocated an extra $12 million to the watchdog for the purposes of getting the FSRA bedded down and working over the next two years.
The real costs, however, will be borne by fund managers, dealer groups and financial planners.
Associated Planners managing director Ray Miles says that the main costs his group has to deal with is the cost of the licence for the 80 planner strong dealer group.
“It should cost between $20,000 to $30,000, which covers things such as the legal work involved and the time it takes for us to apply for the licence,” Miles says.
However, he says these costs will not be passed on to planners or clients. They are the costs of running a financial planning business in Australia and since clients pay for advice, planners should be expected to know what they are doing in providing advice.
Financial Planning Services (Australia) director Darren Wise says the two biggest costs have been the time it takes to prepare for applying for a licence and the training to ensure planners are up to speed.
“Once the licence is in place, we expect costs to settle, but the initial work is the issue, with time the biggest cost,” Wise says.
Despite the fact that the costs of implementing the FSRA are tied into compliance issues and how a planner runs a practice, Wise says it is likely that most costs will get passed down in some form to clients.
He says each practice in his group has its own costs to meet with the FSRA, through dealer group fees, and when costs go up, most planners will pass those on or face a shrinking bottom line in their own businesses.
IFSA deputy chief executive Richard Gilbert says the costs in dealing with the FSRA for product providers, such as fund managers, will go up in the first round of changes as the new law brings in a raft of accounting and legal matters that need to be dealt with.
“The major expenses will be in the set-up costs such as getting new licences and releasing new prospectuses to the market but going forward, the FSRA should streamline procedures and make the industry more efficient,” Gilbert says.
At present, only a few product providers have released products under the new licences and Gilbert says it is likely that the costs involved will be split among consumers and providers.
“The costs will be split as no company can afford to hand over the full amount, especially when fees and costs are already under pressure.”
The Financial Planning Association (FPA) manager of policy and professional standards Christina Kalantzis says costs will affect planners across a wide front, as the FSRA will force changes in not only the areas of compliance, but also business procedures.
An example of this is that even office stationery and documents will have to change to ensure they fit in with the new compliance requirements, such as outlining how planners are supervised and also how they disclose their income.
Kalantzis says planners should not see education as a cost issue as it has been something they have had to do for some time.
But in terms of who will pay for the changes, Kalantzis says at present the FPA is aware that dealers are paying for applications but the flow on cost issue has yet to be addressed.
Yet she does caution dealers and planners intending to pass on costs to do so under adequate disclosure.
So are costs too high for the industry? Miles says no and that the higher barriers now in place are a positive development for the industry.
“This will benefit the industry if it will squeeze out marginal dealers and planners who do not have the competencies. In fact, I would pay more if it guaranteed to clean up the industry,” Miles says.
—Jason Spits
