The crushing real-world cost of advice regulation

Mike Taylor

Managing Editor/Publisher, Financial Newswire

9 February 2026

The real-world costs being imposed on financial advisers has been driven home to Treasury with a submission relating that the cost of professional indemnity insurance (PII) premiums have risen for some firms by as much as 409% in less than a decade.

As well, the Association of Securities and Derivatives Advisers of Australia (ASDAA) has told Treasury that the cost of PII needs to be measured against the allied increases in other industry levies imposed on advisers.

ASDAA said it welcomed the Treasury consultation on strengthening PII as the “first line of defence” for consumer compensation but warned that reforms must not come at the expense of compliant financial service providers’ (FSPs) sustainability.

It notes that PII is a compulsory AFSL requirement, and any changes risking higher costs or restrictions could threaten licence compliance, business viability, and market liquidity – “particularly for low-risk specialists in securities and derivatives who have been absent from the legacy scandals driving CSLR claims”.

“A key concern is the escalating regulatory burden on FSPs, illustrated by real-world data from ASDAA members. PII premiums for one firm have risen 409% nominally from $9,571 in 2007 to $48,762 in 2026, far outpacing inflation,” it said.

“ASIC industry funding levies for the same firm nearly doubled from $11,616 (2021-22) to $22,265 (2024-25) over four years, compounding costs amid CSLR advice sub-sector levies surging from $4.8 million in 2023-24 to a projected $126.9 million in FY2026-27 – equating to $8,300–$9,300 per adviser,” the submission said.

It then pointed to the danger of a “doom loop” of open-ended levy increases which it said creates an untenable system, where even a $500 million annual budget would be deemed insufficient by AFCA and CSLR, demanding hard fiscal caps to enforce discipline.

The ASDAA submission again pointed to the moral hazard which it said is embedded in the Compensation Scheme of Last Resort framework, “where compliant firms subsidise legacy failures without wrongdoing, potentially discouraging upstream diligence while punishing responsible participants”.

“This is exacerbated by AFCA’s subjective, hindsight-biased rulings (e.g., reframing market losses as misconduct in Dixon Advisory) and poor consumer education, leaving investors vulnerable to dodgy schemes like First Guardian, where basic liquidity understanding could have prevented losses,” it said.

The ASDAA submission suggests that falling adviser numbers (47% decline from 28,914 in 2019 to 15,300 in 2025) are attributable to rising costs and red tape, correlating with increased AFCA complaints and scams noting that “fewer professionals mean more unadvised risks from unregulated channels”.

The submission recommends targeted PII improvements worth moderate premium increases, such as banning insolvency exclusions for high-risk sub-sectors, mandating run-off cover for at-risk licensees, and levy-funded ASIC audits of high-claim areas. At At the same time, it warns against harmful ideas like universal high minimum limits or complete exclusion bans, which could spike premiums 30-50% or trigger insurer withdrawals (e.g., Lloyd’s, holding 20-25% market share). The submission calls for Treasury to model Lloyd’s exit risks and prioritise consumer education reforms to close vulnerability gaps.