ASIC Funding Levy – A very poor litigation funding investment

SYDNEY: 27 July 2021 –  The AFA is disturbed to see a further substantial increase in the ASIC Funding levy for financial advisers for the 2020/21 year.  The cost per adviser has increased by 29% to $3,138 in the last year and more than trebled over the last three years.

AFA Acting CEO and General Manager, Policy and Professionalism, Phil Anderson, said the bottom line is that the ASIC Funding Levy for advisers has effectively become a very poor investment in a litigation funding scheme.

“As predominantly small business operators, advisers are being forced to invest a large amount of money into litigation against large institutions, many of whom are no longer even in the financial advice sector,” he said. “There is no access to any upside for advisers on this investment, and a complete lack of visibility on what they are investing in and how those investments are performing.”

Mr Anderson also said that while advisers are paying for the litigation, all penalties go straight into consolidated revenue. “The Government is forcing advisers to fund this litigation, and then taking any financial benefits that eventuate. Advisers only benefit from a partial recovery of a proportion of the costs of the case, but only where ASIC wins.  This is totally unfair and unreasonable.”

When comparing the ASIC Funding Levy Cost Recovery Implementation Statement for 2020/21 with the similar one for the 2018/19 year, Mr Anderson said it is very clear what has driven an increase in the total cost from $33m to $71m.

“Enforcement action, which largely relates to Royal Commission actions, has risen from $9.5m to $31.4m.  In addition, the allocation of Indirect costs has risen from $13.8m to $24.5m.  Undoubtedly, the increase in the allocation of Indirect costs is closely related to the increased spending on litigation funding.”

The combination of the increase in Enforcement and Indirect costs accounts for $32.5m of the total $38m increase between 2018/19 and 2020/21.  On a cumulative basis, over the last two years, these two items account for an investment in litigation funding of as much as $50m.

“If the Litigation funding element of the ASIC Funding Levy was structured as a managed investment scheme, advisers would be caned for recommending this to their clients,” he said.

The AFA is also concerned that the Cost Recovery Implementation Statement may underestimate the final cost per adviser because it is based upon 21,308 advisers, when adviser numbers were actually well under 20,000 by 30 June 2021.

“We would not like to see a repeat of the 2019/20 levy, where the actual was 54% higher than the estimate,” he said.

The AFA is calling on the Government to remove the litigation funding element from the ASIC Funding Levy for financial advisers, or alternatively give them the benefit of any penalties that might be generated and substantially better visibility of what they have invested in.


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About the AFA
The Association of Financial Advisers Limited (AFA)  has been the authentic voice on the value of financial advice for 75 years. Today, the AFA is a vibrant, innovative association, where the underlying driver of policy is the belief that great advice transforms lives. To this end the AFA is striving to achieve the vision of Great Advice for More Australians. The AFA’s ongoing relevance as a professional association is derived from its success in engaging with the major stakeholders in financial advice including advisers, consumers, licensees, product and service providers, and the regulator and government. Culturally the AFA believes in the value of collaboration to create powerful outcomes and this drives how we achieve influence and work towards our vision.