POWERED BY MOMENTUM MEDIA
(November-2003) AFSL: it ain’t rocket science
Super funds have paid consultants as much as $100,000 to ensure that they meet all the requirements necessary to obtain an Australian Financial Services Licence (AFSL), according to a principal with Mercer Human Resource Consulting, Tony Miller.
Miller says his investigations have shown that the fees paid by super funds to ensure they are adequately structured and compliant with the FSRA licensing criteria range from between $20,000 at the bottom end of the scale up to $100,000.
“But you have to remember that the fund that paid $100,000 was a $1 billion fund,” he says.
Last month, former Federal parliamentary secretary to the Treasurer, Senator Ian Campbell claimed that some lawyers and consultants were using scare tactics and charging companies exorbitant fees to complete licensing applications.
Campbell claimed that fees of up to $65,000 had been charged to prepare applications and that one consultant was charging $8000 just to review applications before they were submitted to the Australian Securities and Investments Commission (ASIC).
However, Miller says Campbell was clearly referring to financial planners and entities which were already licensed when expressing concern about the level of fees being extracted.
He says super funds which have never previously been licensed are in an entirely different situation to financial advisers and dealer groups who have already been subject to the financial services licensing regime.
He adds that some super funds have paid as little as $20,000 to ensure they appropriately meet the criteria for FSRA licensing, but the majority seem to have paid somewhere between $40,000 and $45,000.
Miller suspects that funds paying as little as $20,000 are doing so because they have sufficient in-house experience and resources to fulfil the requirements, while those paying as much as $100,000 are large organisations with high profiles which cannot afford to have any issues arise.
Vanessa Hall, head of Entente (formerly called Thompson Hall), agrees that enormous fees are being charged by consultants and lawyers to assist companies in obtaining an AFSL. However, she says the fee structures are scaled according to the nature and size of the business and also the services required.
“The final amount payable often goes beyond licensing to include additional services such as continuous monitoring, ongoing training and guidance of business development.”
Hall adds: “The critical question often ignored is: ‘How much is my business worth to me?’ It is cheaper for the larger superannuation funds to pay extra now to guarantee them an efficient internal structure that is compliant with the law, than to save a few dollars and have an inappropriate structure?’ Calamities such as Enron and HIH serve as timely reminders of this.”
Hall says ASIC has indicated that to date, around 36 per cent of the lodged applications have been rejected. Reasons cited for this include that key information is either missing or materially deficient in areas concerning responsible officers, financial requirements or compliance measures.
“As a result of experience, consultants have knowledge of the common problems associated with licensing and can avoid them,” she says. “Furthermore, the licensing process involves understanding a bevy of legislation and industry guides. Interpretation of such regulation may be difficult for the lay person, but this is an area in which the trained consultant or lawyer can assist.”
However, even experts like Hall believe that super funds don’t need to get expert help in completing their AFSL. “It’s not necessary. You can do it properly if you manage it properly,” she says.
ASIC director of financial services regulation licensing Pauline Vamos agrees, noting that it’s actually preferable for trustees to complete their applications themselves.
She says: “If you read the kits and guides, there’s no need to spend thousands of dollars on external consultants. We expect superannuation trustees to make the application. It will help them better understand their obligations over the long-term.”
She says trustees may, however, need some legal advice along the way on, for example, whether the calculators on their web sites offer general advice. “There are areas where they may look for advice, but the process itself [of completing the application] should not be difficult for them,” says Vamos.
“My message to trustees would be to read the Q&A sections on our web site, especially the one on the line between factual information and general advice. That’s a particularly good one.”
AUTHOR
Zilla Efrat
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