Eight of Australia’s largest financial advice industry associations have united to oppose the design of the compensation scheme of last resort, contained in draft legislation released for public consultation.
The eight organisations, which say the proposed scheme will make financial advice less affordable and accessible, are:
- Association of Financial Advisers
- Financial Planning Association of Australia
- SMSF Association
- Boutique Financial Planning Principals Association
- Stockbrokers and Financial Advisers Association
- Chartered Accountants Australia and New Zealand
- CPA Australia
- Institute of Public Accountants
A joint statement from the associations notes that the Financial Services Royal Commission recommended the establishment of a compensation scheme of last resort to compensate consumers once all other avenues had been exhausted.
It says that all eight associations support a truly last resort compensation scheme.
However, the associations say they do not support the way the scheme is structured “…to include Australian Financial Complaints Authority’s outstanding expenses in addition to failing to address the causes of unpaid consumer compensation.”
…The associations are concerned the scheme may not be used purely as a last resort…
The associations are concerned the scheme may not be used purely as a last resort, which they say is a “… major and unwarranted departure from the Royal Commission’s intent.”
The statement adds that the Federal Government made a commitment to reducing red tape to cut the cost of doing business. “The proposed scheme will add significant cost and complexity, which is at odds with this commitment.”
It says the draft legislation establishes a CSLR operator as a subsidiary of AFCA.
“This adds unnecessary red tape by requiring ASIC to administer invoices and payments and significantly increases the Government’s administration costs of the financial advice sector with little benefit to consumers.”
The associations says that ASIC fees for financial advisers have increased by more than 230 percent over the past three years, noting that most financial advisers are sole traders or small businesses who cannot afford the rising costs associated with increased regulation. Others are authorised representatives of groups who participate in other compensation schemes, which adds duplication.
…We anticipate the proposed scheme will further reduce adviser numbers…
It says that while advice needs are growing, escalating regulatory costs have already caused a “mass exodus” of advisers from the industry stating that the total number of financial advisers has fallen below 20,000 and “… will not be enough to meet this increasing demand. We anticipate the proposed scheme will further reduce adviser numbers.”
The eight member associations say that responsibility for consumer losses and complaints should be shared evenly across the sector. “However, the proposed scheme does not apply to some industry participants, such as product manufacturers.”
“This means that manufacturers whose products are poorly designed and improperly fail won’t have to contribute to the compensation scheme.”
The associations will be making individual submissions to the public consultation opposing the draft legislation on the grounds outlined in their statement.
They are calling for the Government to amend the draft legislation to ensure the proposed scheme can only be used as a last resort, is appropriately calculated and applies to all financial service industry participants.