Speaking on a Financial Advice Association Australia (FAAA) webinar about the implementation of the Compensation Scheme of Last Resort (CSLR), the scheme’s chief executive, David Berry, said listening to concerns from financial services industry representatives was an important step in setting up the CSLR.
This step, Berry said, was key to “make sure that we understood how to interpret the legislation in a way that was going to both meet what government’s expectation was and alert industry where there may be areas of challenge or conflict”.
“I think the other area is we haven’t chosen to go fast, because we want to make sure we do this right,” he said.
“The focus has been on quality, through the eligibility assessments and all of the infrastructure that we’ve built around it.”
The CSLR has also been working with Treasury, Berry said, to ensure that it is applying the legislation “as it was intended”.
“This is new legislation. We are working closely with Treasury to make sure that our understanding of the legislation matches theirs,” he said, adding that increasing trust in the financial system is “possibly the most important” responsibility.
“It’s a very delicate balance that we have. We are seeing the worst of scenarios, but we don’t want to highlight those as though ‘don’t speak to a financial adviser’, we’re trying to portray those in a way that where there is something that is substantiated as financial misconduct, there is a safety net.”
This, he said, can help make potential financial advice clients more comfortable that they will be looked after if they do suffer an instance of financial misconduct.
“We’re quite supportive, particularly of the financial advice sector,” Berry said.
“There are far more people that need advice than are getting it at the moment. What we’re trying to do is help them understand that when you’re making big decisions and you don’t know who to trust, there is a safety net that’s available to help so that they can take those steps to getting the advice that they need.”
The CSLR boss also promised transparency with the advice community, saying he has “all time in the world for any questions that people have”.
“I don’t have a lot of discretion when it comes to the legislation and how it’s applied, but what I do have is the ability to be transparent around what we’re doing and how we’re doing it,” Berry said.
“My commitment to the FAAA and all your members is that if you feel I’m not being transparent enough, then ask the question, and I’m happy to tell you what I can and can’t say at that point.”
Advice makes up 79% of current claims
Turning to some of the specific work of the CSLR, Berry explained that it currently has 102 actively managed claims and has so far paid a total of 37 claims. Among the current cases, the vast majority relate to financial advice.
“Of the 102 we’re managing at the moment, 79 per cent of them are in relation to financial advice,” he said.
“Securities dealing then makes up the next largest cohort, which is 15 per cent, credit intermediaries, which is your finance brokers and mortgage brokers, it was 5 per cent, and credit providers is 1 per cent.”
However, he also detailed that there have been 20 claims rejected for not meeting eligibility requirements.
“For the ones which we’ve deemed as ineligible, there’s been 10 of those where they’ve lodged a claim with us, but they haven’t yet gone through the AFCA process,” Berry said.
“So we just go straight back to them and say that until a determination has been made and the ombudsman has confirmed that there was financial misconduct, there’s nothing more that we can do.”
One of the ineligible claims related to a firm in administration that, through the CSLR’s investigation, was found to have paid the claim before entering administration. Another six were claims that were prior to November 2018, which are unable to be dealt with by the CSLR.
“Then we’ve had three out of scope where the determination was in relation to the disadvantage has been agreed, but not financial misconduct. So, we’re pretty firm on it’s got to be a direct financial misconduct link,” Berry said.
David, of the claims that are related to financial advice, how many are where advisers recommended products owned by their own employer? This includes ones like Dixons.
Advisers should not be forced to pay for product providers inability to manage their own conflicts of interest.
So, if a large Product Provider goes down – can you afford it? Someone explain to me why an Individual Financial Planner is personally liable for the capital losses incurred by retail members of a Product Provider selling their own product via advice? Industry Super is doing this right? I am in no way confident with their investment strategy and do not want to guarantee any future losses?
Sarah Abood from the FAAA – care to explain this?
CSLR should not exist, and it is a shame the FAAA are so supportive of it (albeit it they take issue with the funding method of Dixon claims).
The transparency we need is to know the details of when our money is being handed out. What has made a claim payable? This should be disclosed for each payment.
Keith this story is a waste of your time, and mine in reading it. This guy is a public servant. He is paid to say what he is saying. And he’s not a regulator. So why bother reporting this BS because we know exactly what he was going to say:
“CSLR is good!
CSLR does good!”
He’s not going to enter into the argument about whether or not advisers currently on the FAR should be paying an outrageous levy for advice given by a bunch of crooks who are no longer on the FAR, not to mention retrospectivity
Here’s a suggestion Keith. Get an interview with Mr Jones, one-on-one, without all the ex-Treasury staff that sit in his office. Then ply him with some truth serum. Maybe you’ll have a story, and don’t forget to ask him about all the the current and ex-public servants who still have exposure to URF via their SMSF à la Dixon, and want ME to pay for thier LOSS, somehow forgetting that when you are a Trustee for your SMSF, the loss belongs TO YOU
And then ask the FAAA why it took them so long to object to this HIGHWAY ROBBERY
credit where credit is due. To decide to publish that the CSLR is a good, particularly on this publication takes some big cojones 🙂
The CSLR should never have existed. It’s a bloated budget for a CEO and staff that have “no discretion” and are there simply to write cheques from funds collected by an obnoxious levy, on matters that AFCA had already determined. They are the literal definition of a paper-pushing organisation. AFCA could have handled these cheques without the entire overhead of the CSLR organisation.
What we’ve ended up with is yet another “consumer organisation” with a budget and platform to regularly pump negative adviser sentiment into the market. We’re now going to hear regularly about how yet another client was “saved” from “bad advice,” further fuelling distrust in the industry. Unfortunately, this has become yet another component of the non-profit sector’s propaganda machinery against the for-profit adviser. The SMC, and Misha Schubert, would be loving the fact that they now have an “ally” to help point the finger at those “dodgy advisers.”
The CSLR is a terrible addition to the financial services landscape, long before even considering the Dixon fiasco. It’s disappointing to see resources being wasted on a scheme that is only focused on perpetuating negative narratives about advisers.
Let’s be clear CSLR – this is a Govt, Treasury, ASIC rort to have good Advisers pay for ASIC’s decade long failings to stop Dodgy Dixons MIS fiasco.
And then ensure Canberra bureaucrats are compensated for their stupidity to invest with Dixons.
Any statement from CSLR should details the exact number and % of Dodgy Dixons complaints related to Financial Advice.
Let’s get some Dodgy Dixons reality in every announcement hey David Berry !
“Of the 102 we’re managing at the moment, 79 per cent of them are in relation to financial advice,”
Is that right? Are any relating to Dixons?
My understanding is most of the clients and advisers are all living happily together on another ASFL?
Have these Dixon clients been investigated and a liability determined, the old ASFL refused or failed to pay and the PI refused to pay – and then it ends up at CSLR? Or are Financial Planners being had?
Seems like a great argument for self regulation as clearly the system is failing – otherwise no need for a CSLR at all?
So 79% of claims are advice related? how many of those are Dixon? Of course Dixon claims are not actually advice related they are product failure but as soon as a product is recommended in an SOA it becomes advice. What is the percentage of claims please if Dixon is excluded……please tell.
‘The head of the CSLR says that building trust in the financial system is a core responsibility of the scheme, which can help make clients comfortable seeking an adviser’.
If we ran a survey of all prospective clients who go to see a financial adviser in the next 12 months, I wonder how many would say they went to see the financial adviser because the CSLR made them more comfortable to do so?
I would guess 0.001% and I am being generous.
Does Compensation Scheme of Last Resort (CSLR) not make Professional indemnity Insurance redundant? or does Professional Indemnity Insurance make CSLR unnecessary and just another Treasury/ASIC revenue stream that is passed onto the clients via fees? Makes no sense CSLR with Professional Indemnity in place!!! What makes more sense, given the Dixon saga is that perhaps Australian Financial Services Licensees should be paying the CSLR levies, and individual advisers their own Professional Indemnity Insurances to compensate clients in the event of inappropriate advice, like it is common in other true professions?
Yes, I suspect there is an Agenda from Treasury/ASIC in having the CSLR being a liability to individual Financial planners rather than the Licensees? Only a matter of time before some big product falls over and bingo – David Berry will be in work for years handing out $$$$ and calling the scheme he runs a wonderful thing – and what great work he is doing – and Licensed Financial planners will be getting a bill – potentially big enough to make you sit down – and the penny drops as they say?
Just make sure clients are informed – the truth is better for clients and in the longer-term, it is just undermining the confidence in the Executive branch of Government – and legislated business (doing good they say) like the CSLR with legally enforceable sources revenue (Licensed Financial Planners) – forever?
Count them – how many sources of revenue (for someone, something or another) is a Financial Planners made to pay? Red Tape it seems pays some very well. Your example of the Solicitors would mean David Berry is looking for work – probably not what he wants?
My name is William Mills, and I am a licensed financial adviser with our own AFSL practicing in Thornleigh in NSW.
CSLR (Compensation Scheme of Last Resort) is just a “Band Aid” to fix a broken system and fails to correct the basic need to compensate clients that have received bad advice that was never their fault.
Solicitors in NSW are covered by scheme run by the Law Society and when a local Solicitor in Hornsby took money from his Trust Account, the Law Society stepped in and appointed another solicitor to run the practice to ascertain the level of the losses. Every client of that practice was fully compensated, and they did not need to do anything other than to verify their loss,
It is our wish to see a similar scheme put in place for our profession and abolish CSLR as it will be redundant.
Professional Indemnity Insurance
As financial advisers, we pay a lot of money for PI Insurance and if we had a scheme that would guarantee that clients that received bad advice for any reason, were fully compensated, then CSLR would be redundant, and AFCA’s role could be streamlined to manage claims on a mediation process.
So the vast majority of honest advisers meeting best interest, managing conflicts of interest, maintaining appropriate levels of PI cover are forced to pay for the sins of the small minority of advises. How does this build trust in advice? It doesn’t stop clients losing monies from the likes of Dixon’s, it just shifts the responsibility. CSLR sends a message to clients that if your advice is poor and you can’t get compensation from the guilty party someone else foots the bill. There is no punishment of the guilty party or any deterrent, CSLR gives a green light to dishonest advisers as they know they don’t have to fund any compensation, just ask Evans Partners. Clients lose, the advice profession loses and the provider of the poor advice walks away scott free. Again where is trust being built in the whole fiasco?
So the CSLR is effectively a liability on individual Licensed Financial Planners which they must met personally and to top it off, have no ability to limit this liability?
Didn’t ASIC do Report 639 – are Licensed Financial Planners liable for these in the future?
David who?
Hey David, Me thinks you have been drinking too much of the CSLR Cool Aid. Alternatively, you are living in some sort of parallel universe.
“Listening to concerns from financial services industry representatives” is one thing. Walking a mile in their shoes is another.
It’s a tangled disgraceful mess which we have to help our clients navigate, and we are the ones who are left to explain the fee increases from a costs recovery perspective. Let me tell you that they don’t like it!
This issue annoys me more than just about all the issues before it. The FAAA is so so so far off course I no longer care what the FAAA has to say – because it only disappoints.
You know who will be more comfortable – the dodgy financial planners who will have all the ‘honest brokers’ pay for their misdemeanours. They must all be laughing all the way to the bank! What a joke!
Talking yourself up is nothing new. He would say this though wouldn’t he?
Mandy Rice-Davies may have left us, but her succint summary of lying politicians in 1962 remains as true as ever:
” He would say that, wouldnt he !”
Clients are not going to be more comfortable. Clients are being told “your fees will go up this year to cover CSLR costs which come from other advisers breaking the law and facing no consequences”.
possibly the dumbest thing I have heard – so lets make advisers pay more fees to gain the trust of consumers – what a load of garbage
Maybe – However its funding mechanism is entirely wrong.
Entirely.
I think that they have no idea and they are driving advice to the brink of being non existent. Maybe have the PI Insurers pay for this, as this is the reason why you have it???? I am lost as to why advisers are loaded with this.
I know it sounds like a conspiracy theory, but you better believe it, because the proof is in the eating. O’Dwyer and Frydenberg were both ex-bank employees, indoctrinated with the culture that the banks always know best, and as is well-known, big contributors to Liberal party election funding. O’Dwyer allowed the banks to Introduce, and then fund, Fasea to the tune of $11.5 million for the first three years. Frydenberg welcomed LIF, an intervention by the banks to bolster the value of their for-sale life insurance arms.These two measures attacked self-employed advisers right between the eyeballs.
The banks have always hated self employed financial advisers because they are recognised as solid competition because they build, and hold, relationships with clients. Banks do Impersonal deals, then move on, to the next deal.
When you add that particular culture to the anti-adviser culture of ASIC, you get the disaster we have today. Throw in the culture of the industry superfunds, together with a sympathetic and dependent Labor Party in government, and it’s a nightmare.
Welcome to our nightmare, From which, apparently, we are not waking up.