According to Financial Advice Association Australia (FAAA) chief executive Sarah Abood, Financial Services Minister Daniel Mulino’s decision on how to handle the Compensation Scheme of Last Resort (CSLR) special levy is vital to set an “expectation about what’s going to happen in the future, as well as just what’s going to happen this year”.
At the start of July, the CSLR operator released the FY2025–26 revised levy estimate, which lowered the amount attributable to the financial advice subsector to $67.3 million.
Along with the announcement, the CSLR notified the minister of the need for a special levy of $47.29 million.
In response, earlier this month Minister Mulino asked Treasury to consult on the statutory options available to deal with the CSLR 2025–26 revised claims, fees and costs estimate.
While the broad range of options available to the minister can be simplified into four options – do nothing, delay the payment of compensation, levy it all on advisers, or spread the cost among more sectors – the final option provides a massive amount of variation.
Speaking on an FAAA webinar last week, Abood said the association’s view is that the sector can’t take on any more of the burden than the already maxed out subsector cap.
“It’s already $20 million. It’s already too high for us. We certainly have the view that that none of that should be attributed to the advice sector,” Abood said.
“With that caveat, our view is that additional amount should be spread as widely as possible across all the firms and sectors that are subject to being members of AFCA, and that is based on essentially affordability capacity for the sector.
“The CSLR already makes no attempt really to attribute blame to any particular player. We already know that the advisers who pay the levy are not the ones who did the wrong thing. I don’t think there’s any future in trying to attribute blame in this year or any future year as to who’s responsible for the levy going over the sector cap.”
Abood’s stance echoes that of FAAA general manager of policy, advocacy and standards Phil Anderson, who outlined that spreading the cost based on culpability is “problematic at best” on a recent episode of The ifa Show.
“I think we would prefer it was more on the capacity to pay basis and it was as broad as possible so that this is taking in as many sectors as possible, but particularly those that have the greater capacity to pay,” Anderson said.
The way this is calculated in the Treasury consultation paper is through profits – which would put the additional cost to financial advisers at $915,000.
Also speaking on the FAAA webinar, association chair David Sharpe said that even if the advocacy on the special levy had a “successful result”, it’s not really success, just “stemming the bleeding”.
According to Abood, any relief through the special levy decision is merely a “Band-Aid”.
“It’s a needed Band-Aid, but it doesn’t solve the problem. If we’re not making a serious attempt to address the underlying causes that are making us need to have a special levy, then this is going to be effectively an additional tax on financial services companies forever,” she said.
“In the special levy we’re still not resolving, why are these claims happening? Why are we not able to ensure that the people who have done the wrong thing and have caused these consumer losses – why are we not making every effort to bring those individuals and those businesses to account?”
In effect, the CEO added, the moral hazard of the CSLR is that the sector is “socialising losses while we’ve privatised profits”.
“That is not going to work long term, if people are able to retain the profits that they’ve made from poor activity and bad behaviour that’s impacted clients, but the losses are socialised across all participants in the sector that is going to be diabolical for the future,” Abood said.
“We can’t allow that to continue, so we would certainly consider it to be incredibly urgent that we address all the other issues with the CSLR that have been called out by many participants in the two inquiries that are currently on foot.”
However, in the example of Dixon Advisory, which saw its parent company E&P Financial avoid responsibility through shutting down the firm and transferring clients and advisers out, years later nobody has been held to account.
“So far, not a single adviser has been banned or sanctioned for the Dixon Advisory debacle, and yet somehow being defined as an advice failure, and all of the advisers in the profession are paying for that, whereas the firm that benefited,” Abood said.
She added: “I’m utterly astonished that we haven’t got a more tight and more aggressive focus on pursuing the companies and the individuals that have given rise to these failures.”
And let’s wait and watch history repeat when Interprac is put into administration.
It is the existence of the CSLR that is actually incentivising the unlicensed fraudsters and also incentivising ASIC to do fck all about them.
I would prefer FAAA to be more like the CFMEU in this case and say don’t pay the ever increasing CSLR levy if you hold an AFSL just send it to ASIC who we all know have not helped with this issue due to their incompetence…!
If we all banded together and actually did that the government would not ban us all because we are needed just saying…
If you don’t stand for something then you stand for nothing…
Perhaps the solution requires ASIC to be broken up and rebuilt.
Why do taxpayers and advisers continue to pay for poor results?
Andrew Bragg’s report last year feels like it was on the money.
You are correct, the first step to a real solution is to tear down ASIC and start again.
But Albo is not exactly what you would call a strong and decisive leader. He would never do anything as affirmative as reshape a major government department. That would suggest failures and cause the Public Service Union to kick up a stink.
It’s simple, action hasn’t been taken against Dixon because the two CSLR reviews are buried in the bottom draw of Ex Head of Dixon Advisers, Nerida Coles now Government Treasury office.
Corrupt Canberra PAID FOR ONLY 1 DIXON CLAIM.
Now Corrupt Canberra bury the CSLR reviews.
ADVISER AND AFSL’S MUST BOYCOTT CSLR ON MASS.
DO NOT PAY GOVT THEFT FROM ADVISERS OF CSLR.
It’s simple, action hasn’t been taken against Dixon etc, because ASIC is lazy and incompetent. Even after being warned by many advisers what was happening they did nothing, and this cycle has repeated from Storm, to Dixons, to Shield. ASIC is the problem not advisers. If they actually did their job these issues would not result in so much consumer harm, and rogue operators to walk away laughing.