Researcher Rice Warner has defended its $11 opt-in cost estimate after receiving criticism over elements of its process, in particular the number of industry participants included in the calculations.
In a letter to the Minister for Financial Services, Bill Shorten, which the company released to the media yesterday, Rice Warner hit back at claims its decision to only include the industry’s top 100 dealer groups restricted the outcome in relation to cost.
“Rice Warner has been criticised for restricting its calculations to only include the top 100 dealer groups,” the letter said.
“It is generally accepted by industry stakeholders that there are about 17,000 advisers operating in the market.”
The company said data obtained from an industry top 100 dealer group survey found Australia’s smallest dealer group had just 12 authorised representatives.
“There will clearly be some advisers who fall outside the top 100 dealer groups. However, their number will be small relative to the accepted industry total of 17,000,” the company said.
“Overall, it is reasonable to conclude, from the published data, that no more than 2 per cent to 3 per cent of authorised representatives are with dealer groups with fewer than 30 authorised representatives.”
In regards to the costing estimate, Rice Warner said its opt-in price tag should not be confused with the cost of contacting clients who are not serviced regularly nor should it be confused with the implementation and ongoing costs of other changes under the Future of Financial Advice (FOFA) reforms.
The $11 estimate per client per annum for opt-in is the ongoing cost, and excludes opt-in implementation costs, the firm said.
“It also excludes any costs associated with other parts of the FOFA reforms. We have also made an important underlying assumption that advisers are already in regular contact with their clients, meeting at least once every year,” the group said.
Rice Warner estimated that dealer groups would have a one-off ‘opt-in’ cost of $105,000 with an ongoing cost of $110,000, whereas figures for product providers were markedly higher.
An estimated one-off fee for a product provider would be $1.4 million and $450,000 ongoing.
In terms of an industry wide cost, Rice Warner assumed there these costs will be incurred by 25 product providers and 100 dealer groups, resulting in total one off costs of $46 million and an ongoing cost of $22 million.
