Many small-scale financial advice firms will fare better under a new proposed user-pays funding model that has been released for industry consultation by the Australian Financial Complaints Authority (AFCA).
Under the new model, AFCA stated about 90 per cent of members would either see a reduction in costs or no further increases while the remaining 10 per cent, typically large institutions, would see increased costs that reflected their usage of the service and addressed their cross-subsidisation by smaller members.
In terms of advice-related businesses, which are bundled with investment firms for AFCA reporting purposes, the authority stated that 16 per cent of firms will see a decrease in total annual fees, 78 per cent will see no change, 6 per cent will see an increase due to higher relative complaint volumes and 98 per cent will only pay the annual registration fee.
AFCA chief executive and chief ombudsman David Locke said the proposed model was fair, transparent and equitable and supported by strong data and modelling based on a study of AFCA’s funding by PwC Australia.
“We have listened to what you have told us over the past few years and this has been used to design a model that rewards good performance and early resolution, and apportions fees fairly based on use of AFCA’s services,” he said.
To further support small members, the model will incorporate a single registration fee; a simplified complaints fee structure with five free complaints per year; the removal of the superannuation levy and bringing super funds under the same fee structure as other AFCA members.
As a result of these changes, AFCA stated the annual registration fee for 95 per cent for licensed financial firm members of the AFCA external dispute resolution scheme has been reduced to an estimated $376 for the coming year,
AFCA has encouraged firms and industry groups to provide feedback before the consultation period ends on 22 April 22 after which the model will be put to AFCAs independent board in May, and any changes would take effect from 1 July 2022.
The Financial Planning Association of Australia (FPA) welcomed the changes that would provide cost relief to a large proportion of its members.
“The FPA has been a strong advocate for simplifying the AFCA fee structure for financial planners and we welcome these proposed changes,” FPA chief executive Sarah Abood said.
“The existing complex tiered annual membership pricing will be reduced to a flat $375. The complicated case fees model with 17 fee categories will be simplified into seven fee categories – and all at lower prices than currently charged.
“Importantly, AFCA will not charge member firms for the first five cases which go through their processes irrespective of which stage of the AFCA process the cases finish at.
“In the financial planning and investment sector, only 4 per cent of firms go above five cases in a year and the FPA understands they are mainly in the investment area or impact very large advice licensees. Therefore members are very unlikely to pay more than the annual membership fee going forward in AFCA fees. This is a good outcome for FPA members.”