The FAAA’s Phil Anderson is continuing his criticism of the Compensation Scheme of Last Resort (CSLR) as the sector awaits the scheme’s cost estimate and levy for the 2025/26 year.
In the FAAA’s submission to the Senate Economics Committee inquiry into wealth management companies, Anderson, GM Policy, Advocacy & Standards, highlights industry concerns about companies such as Dixon Advisory – which collapsed placing a financial burden on advisers.
Its key bone of contention with CSLR is the cut off date for who pays when an historic complaint is covered by CSLR.
In broad terms, the financial services sectors funding CSLR are responsible for claims for compensation submitted after 7 September 2022, despite the scheme not starting until April 2024.
Any complaints submitted, after the creation of AFCA in November 2018, up until 7 September 2022, are to be covered by the country’s top 10 largest financial institutions.
However, by September 2022 there had been 1,638 complaints to AFCA about Dixon Advisory – ASIC suspended the firm’s AFS licence in April 2022.
Anderson wants to know why advisers across the country are collectively on the hook to compensate many of Dixon’s clients as it failed well before CSLR legislation became law in June 2023.
“This is an important issue for the financial advice profession, with a potential exposure of up to $135m for just Dixon Advisory alone, and with more collapses continuing to emerge,” states Anderson.
Government has been aware of the problems with the CSLR for a long time now…
“Now is a critical time as we await the expected announcement on the CSLR cost estimate and levy for the 2025/26 year.
“The Government is the key player in this. It is the one who designed and implemented the CSLR, and it is the only one that can fix the problems.”
The FAAA has previously set out three key complaints about the actions of Government:
- Delivering a scheme that is retrospective, rather than a prospective scheme, as proposed by both the 2017 Ramsay Inquiry and the Hayne Royal Commission
- Only picking up the cost of the first three months, when having previous committed to paying for the cost of operations and claims for the first 12 months
- A complete failure in the disclosure on the cost of the CSLR and avoiding doing an impact analysis
“We are firstly calling on Government to commit to not charging the advice profession more than the $20m sector cap in 2025/26 and then changing the law to overcome the design problems to ensure that it is equitable and sustainable,” states Anderson.
“Government has been aware of the problems with the CSLR for a long time now, yet have failed to take action. The advice profession cannot wait until after the election. The Government needs to act now and commit to fixing the problem.”
An FAAA paper outlines how it believes the Federal Government let the financial advice profession down in the design and implementation of the CLSR.
See our report: Impact Analysis of CSLR ‘Likely Not Undertaken’
