The escalating cost of the CSLR is shaping up as a major threat to the financial advice profession, FAAA CEO Sarah Abood told delegates in a keynote speech at the association’s annual congress in Perth.
Addressing a packed audience of financial professionals, Abood said fixing the CSLR remains “a core priority” for the FAAA. She said that while the association “supports the scheme and its importance to consumers,” she warned that its funding model contains “fundamental flaws” that risk its sustainability.
Abood revealed on Tuesday 18 November that the scheme is now paused, unable to honour new claims after exhausting its available funds. Advisers have already contributed $20m this year and are now awaiting a decision from the Assistant Treasurer and Financial Services Minister Dr Daniel Mulino on an additional $47.3m special levy.
She said the funding burden has been “vastly in excess of Treasury’s initial estimates,” with the CSLR now expects to require $137.5m in FY27, including just under $127m attributable to the financial advice sector.
“That’s potentially over $8,200 per adviser on our current numbers, if we end up with the full amount,” she told congress attendees.
The estimate does not include possible claims from the collapses of Shield and First Guardian, which actuaries say are still too uncertain to quantify.
Abood also referenced CSLR CEO David Berry’s warning that the rate of financial firm failures “doesn’t seem to be slowing”.
Financial advisers didn’t set up these funds and they didn’t cause their collapse…
Turning to the Shield and First Guardian failures, Abood said as much as $1.2bn is at risk for almost 12,000 investors, “this could represent the biggest funds failure in Australian history – eclipsing even the almost $1bn lost in the Pyramid Building Society failure”.
“Financial advisers didn’t set up these funds and they didn’t cause their collapse,” she said. “The lion’s share of the blame in this matter unquestionably lies with the funds themselves – the directors and investors, the conflicts of interest and related party deals.
“ASIC has disclosed that it is investigating a total of 140 individuals and entities in relation to this collapse, across a range of different players.
“It looks like our challenge here is not changing the law, it’s getting better at detecting breaches, and faster at enforcement.”
Abood reiterated the FAAA’s call for special levies to be “spread as broadly as possible” across all sectors covered by AFCA.
“It’s unjust and unsustainable that any business should be called upon to compensate consumers they didn’t harm, to such an extent that it threatens their viability,” Abood said.
“It is absolutely crazy to drive good and compliant businesses out of a sector by forcing them to compensate the clients of the bad and non-compliant businesses.”
