MDS drags Treasury to assess FSC levy proposal

My Dealer Services (MDS) has called on Treasury to assess the Financial Services Council's (FSC) latest proposal to lift levies paid by licensees to ASIC, which it describes as an "attack" on small licensees.

MDS has written to the Treasury to intervene, noting that rather than a funding reform, the FSC's motive is to force consolidation of smaller licensees.

In its white paper proposal, the FSC recommends redesigning the ASIC financial advice levy to fund supervisory uplift, by materially increasing the licence-level component while reducing the per-adviser burden.

Under the first option, it proposes increasing the levy from $1500 to a minimum of $25,000 while proportionately reducing the per-adviser fee from approximately $2,300 to a maximum of $1,700.

"This would better align levy incidence with where risk is managed, recognising that continued increases in per-adviser fees are not sustainable as a means of addressing ongoing regulatory costs," the FSC said.

Under a second option, FSC recommends raising levy to $40,000 for licensees and per-adviser levy to reduce to $500.

MDS noted under this proposal a single adviser practice would face an increase of roughly 600% under the first option and over 950% under the second, while a 300-adviser licensee's levy would fall by around 23%.

"Essentially the entire redistribution flows to the 28 licensees at the top. Those licensees, carrying 5744 advisers or 37.9% of the profession would collectively save in the order of $2.8 million a year under Option A and $9.3 million under Option B," MDS director and founder Alexander Euvrard said.

"That is the transaction at the heart of this proposal: an eight-figure annual transfer from more than 1700 of the smallest advice businesses in the country to a group of large licensees small enough to fit in one (albeit large) boardroom."

MDS added the white paper's own modelling assumes that 15-20% of licensees would consolidate or close as a result.

"That is not an unintended side effect to be managed; it is the design working as intended," Euvrard said.

MDS head of strategy Ashley Mahadeea noted many large adviser groups view the rapidly growing self-licensed sector as a competitive threat and this proposal would materially blunt that competition.

"A levy whose stated modelling anticipates the exit of one in five licensees, overwhelmingly the smallest, is an industry restructuring instrument, not a cost-recovery mechanism and it should be evaluated as such," Mahadeea said.

"In our view the proposal is not a funding reform. It is a redistribution of regulatory cost away from large licensees and onto small ones, dressed as risk pricing and it would operate as a structural barrier to the self-licensed model at precisely the time that model is delivering strong growth and client outcomes."