Much of the focus from advice associations and other stakeholders in the outcome of the Compensation Scheme of Last Resort (CSLR) review has been on the unfair burden the ever-growing levies have on financial advisers.
The estimated $70 million cost of funding the advice subsector in 2025–26 – $50 million above the cap on the sector – as well as the projected blowout to more than $120 million in the following year, has added to the urgency of calls to reshape the scheme’s operation.
“We want action,” Financial Advice Association Australia (FAAA) general manager policy, advocacy and standards, Phil Anderson, told ifa last month.
“We don’t want sitting around for months waiting for action to be taken when there is no certainty of when that will occur.
“The problems are already known, the need for the government to take action has been fundamentally clear for a very long time.”
However, consumer groups have told the government that “years of evidence of [the CSLR’s] need should not be forgotten”.
A joint submission to the Treasury post-implementation review of the CSLR – penned by Super Consumers Australia, CHOICE, Financial Counselling Australia, and three consumer legal rights bodies – said that if the scheme is successful, the “need for the CSLR should subside over time”.
“The role of the CSLR is novel and there may be opportunities to fine-tune its operation to manage any teething issues or unexpected challenges,” the submission said.
It added: “CSLR must continue to play a key role in delivering justice to consumers who have suffered a loss due to the misconduct of financial service providers, thereby restoring and maintaining confidence in the industry.”
Among its recommendations on how to ensure the CSLR is “successful in its outcomes” is to increase the cap on compensation payable by the CSLR, so that it is in line with the Australian Financial Complaints Authority (AFCA) compensation cap.
As things currently stand, the CSLR is limited in the amount it can pay to victims of financial misconduct, with the maximum amount per determination that reaches the scheme set at $150,000.
This is considerably less than the compensation that AFCA is able to award, which in most claims of direct financial loss is $631,500.
The submission noted that the Ramsay review recommended that a “compensation cap, aligned to ACFA’s, should apply”, which the financial services royal commission final report agreed with.
“I agree with the panel’s recommendations, including those it makes about design principles. The approach proposed by the panel should be followed,” commissioner Kenneth Hayne wrote in the report.
Bringing the two caps into alignment would more than quadruple the amount the CSLR could pay out, which would likely lead to a significant increase in the levy on financial advisers.
Looking just at claims against United Global Capital (UGC), which make up the bulk of the estimated FY2025–26 levy, the CSLR actuarial report put the average cost per claim at $145,000 with the cap in place.
Based on the limited number of determinations that AFCA has published to date, increasing the cap to match what AFCA can award would put the average across the four decisions in favour of clients at around $250,000.
While it is a small sample size, were such a drastic increase to hold across all the decisions, the cost to advisers would blow out even further.
Expansion to include MISs
Where the consumer groups do align with the advice sector, however, is in urging the government to expand the scope of the CSLR to include managed investment schemes.
“A clear example of the problems with the current approach is with the blanket exclusion of managed investment schemes (MIS) from the scope of the CSLR,” the submission said.
“The Ramsay review found that operators of managed investment schemes were the second highest category of non-compliant financial firms at the Financial Ombudsman Service and recommended their inclusion in the CSLR.
“This high rate of non-compliance has continued in the AFCA era as well. Including MIS in the scheme may also help expand the sources of funding for the levy and reduce the individual burden of the levy on financial advisers.”
It also argued that the reasons used to exclude MISs from the scheme are “weak”.
“MIS may sometimes be a high-risk investment, this may not be apparent to less financially competent individuals that are reliant on financial advisers, particularly when misconduct by the adviser has influenced their decision to invest,” the submission added.
“While the CSLR was not originally intended to cover reasonably known market risk, this is not a fair description of many cases involving MIS that have devastating financial consequences on the victims of financial misconduct.
“At a minimum, there should be scope for inclusion of consumers in these situations that fall outside the target market described in the design and distribution obligations for these products.”
The FAAA has previously singled out the inclusion of MISs as particularly important, though recommended that the CSLR’s scope cover all AFCA members.
“Substantial consumer harm has been caused by product failure rather than advice failure, harm that currently has no recourse (e.g. Sterling, Mayfair etc). People have lost their homes and life savings,” the FAAA said in its submission to the Senate inquiry into the Dixon collapse.
“The current situation encourages inappropriate risk-taking and higher risk products to be launched and sometimes targeting elderly consumers with insufficient financial resilience to withstand losses (as the wholesale limits are too low). These consumers then become entirely dependent on the social security system.”
At this rate, they’ll blame us for Cyclone Alfred.
Probably right – climate change – they will therefore need more funding to save us all from the immediate threat I would guess?
Can you imagine going to a dinner party with these people?
They’ll bring the cheapest bottle of wine they could find, or some homemade thing their uncle has made or bring nothing at all.
The dress code was ” dressy ” and they turn up in a brown home knitted jumper made of organic Llama wool.
Once they’ve finished downing all your nice food and wine and boring every guest to the point of passing out with their analysis on every single topic they know nothing about, they will leave early, not help to clean up and drive off home to their 2 children, Petal and Righteous in their cheapest model Tesla.
Probably all funded via some sort of Government Grant? Another “Government” funded “Non Government Organisation” – all working like “The Borg”?
If not a llama knitted jumper then a lambs wool cardigan.
BTW: they’ll listen to Radio National on the way home, some new version of Phillip Adam’s who made all his money in the fabulously scrupulous advertising industry.
Make them (the consumer groups and their families) pay for it, and if the adviser can be convicted, reimburse them.
This endless shuffling of responsibility, and a last resort option as an easy guarantee for getting ripped off, has to stop. Get tough on crime, stop subsidising it. Better legal aid, legislation to pursue real justice against actual criminals, and a social security net above the poverty line should be the aim – so if you loose everything in a bad decision, or a criminal has fleeced you and they have in turn lost all the money, you can still carry on. Tough, sure, fair, no, just like life itself. The rest of this is just a first world fantasy.
To them and anyone who earns a taxpayer dollar I would say: wake up and grow up, taking from others to give to people who have lost wealth forgets the people who never had it in the first place. Start there.
The first Industry group that launches legal action on behalf of their members against ASIC for not taking action against Dixon’s sooner will get my membership.
It seems perverse that ASIC knew about it but didn’t deem it necessary to investigate until it all blew up, and now advisers are footing the bill.
I wonder if Alan Kirkland, ASIC commissioner, has prompted these “consumer groups” to request these changes. Afterall, there is a nice connection between these groups and ASIC… It’s funny how these consumer groups never focus on the investment scams out there, the pressure cooker call centres and everything that leads to consumers losing billions of dollars to these scams. I haven’t seen them provide one bit of education to the general public regarding these scams, which of course can be drastically reduced by getting advice from professional financial advisers. Ulterior motive? you tell me!
I cannot stand consumer advocates.
I’ll never forget an absolutely filthy press release that was during the thick of COVID regarding financial advisers.
There I was doing my absolute best to assist the public (often for free) in my little patch of rural Australia in what was quite a difficult and uncertain time.
What they wrote was appalling.
I’d encourage the financial adviser community to read this as it speaks volumes about what they think about us.
Here’s the link.
https://www.ifa.com.au/news/27835-industry-body-refutes-consumer-group-attack-on-advisers?highlight=WyJzdXBlciJd
From the article you referenced, “Patrick Veyret urging to consumers to discuss their plans with a financial counsellor as these services were “free and independent”.
Mr Veyret also warned consumers that “it will only be in very rare circumstances that a financial adviser recommending early access of super is doing so in your best interests”.
Now guess where Patrick is now? The ACCC. It’s just one big merry-go-round with these so called advocates. Finding their way into all the government departments. Must be a cosy relationship.
There aren’t any genuine consumer groups in Australia anymore. They have all been hijacked by ideological activists, who use them as a well paid vehicle to impose their extremist views on society, largely to the detriment of most consumers. Please stop calling them “consumer groups”.
They’re also a launchpad to new positions.
Like ASIC Commissioner.
Looking for advice on the following scenario:
I recommend my clients invest in a highly leveraged fund (that a subsidiary of my company own) and tell them projected returns are 14% a year. In ten years I build the business up to 500 clients and have FUM of $1 billion.
Things go well for 8 years, but in the last 2 years the markets crash.
My clients have total losses of 50% compared to a 60/40 portfolio that had no losses.
I cut my losses and declare the business bankrupt and stop all withdrawals from the fund. I’ve structured it so I can keep all the money I have made in the last ten years and walk away with no personal risk.
Is the purpose of the CSLR to give my old clients the $500 million they have lost?
Isn’t this essentially what Dixons have done?
So if the payout is quadrupled, I’m guessing that means we’d be approaching $40,000 per annum, per adviser in CSLR fees?
No other profession in the world puts up with the absolute crap that financial advisers do.
Consumer advocates can go jump.
Appalling.
Self interested consumer groups and lawyers need to take a look at themselves and the nation wide harm they have inflicted by abusing the advice profession.
This doesn’t exist in a developed country in the world consumer groups need to pull their heads out and accept the impediment they have wrought in Australians who cannot seek advice due to cost. Disgusting parasites
Sure let’s just have zero risk investing into RISKY investments.
Any loss guaranteed by the Advisers and Investment providers.
There won’t be a Regulated Advice and or Investment industry if this occurs.
You cannot guarantee Investment Risk !!!!