The CLSR remains a sore spot for the advice industry as the scheme’s collective approach to repayment (or, as some would see it, punishment) driving up operating costs for many firms.
The recent announcement that advisers will now pay the first $40 million of any payout before other sectors contribute is likely only going to exacerbate these stresses, with the FAAA labelling this model “unworkable.”
Speaking on the latest episode of The ifa Show Podcast, Fradley Advice founder Nathan Fradley affirmed that he too supports the CSLR in concept, but sees its model as unsustainable and unfair.
“In theory, the concept of an insurance policy for people, I absolutely agree with,” he told the podcast.
“We believe in the concept of it. [But] it’s broken, it doesn’t work, or it needs to be binned, and we need to look at it from a different angle. That’s my view.”
One of the key issues Fradley identified with the scheme is that it often fails to live up to the ‘last resort’ part of its name, arguing that too often it is relied upon in cases of insolvency.
“It seems to be the first resort. It’s like, ‘They don’t exist? Go to AFCA, and if they don’t exist, you’ll get funded to some extent.’”
Like many within the industry, Fradley shares the view that the CLSR is helping drive advisers out of the profession, stating in many cases it is not even a matter of profit, but principal.
For some, he said the natural question is, “Why am I paying $12,000?”, particularly for those with multiple advisers and thus cop a higher bill. This is leading them to “hang up their boots”.
Shifting the focus from advisers, the CLSR also negatively impacts victims, according to Fradley who argued that not only does it drive out high-quality advisers but often it doesn’t repay victims anywhere near the amount of money they have lost.
“Yes, it’s given some mechanism to the victims, but I don’t think it’s adequately compensating them either. Even at that price point, we’re only giving them $150,000. They just lost $600,000 or their entire livelihood has been destroyed, so we’re just punishing all these people for the actions of a few.”
CSLR reform, as well as the general sweep of changes that have come through with the DBFO reforms, are a hot topic within advice in general, with many individuals and industry bodies welcoming reform.
The challenge is many changes are either too punitive, add unnecessary layers of regulation to an already over-complicated framework, and fail to recognise that many incidents where the CSLR is needed are not because of a lack of appropriate regulation, but due to advisers willingly breaking the law.
“A lot of these issues with the likes of Dixon could have been addressed under the existing rules. They didn’t need to be changed. They just weren’t being managed or policed properly. We don’t need to increase the regulation. We have appropriate regulation in place.”
Fradley believes that if the industry wants to see meaningful change to the CSLR it will come from amplifying the advisers’ voices through collective pressure and dictating to the Government what changes they want to see, rather than waiting for lawmakers to eventually get it right.
“I’m big on go through the association and lean on our collective voices. We should be spamming Treasury too. We need to have some volume to how this system works.”
“Good concept, weak execution”
The perfect summary of so much rubbish from Canberra.
– FARSEA education fiasco
– FARSEA code of ethics
– ASIC Adviser levies offset by legal costs recovered ? Yeh right how much = $Nil
– MIS regulation to be reviewed ? 2022 and ongoing still Nothing, But Blow Ups !!!
– DBFO1, Fee Consents stuffed up again
It could be a very, very, very long list of Bureaucratic incompetence.
And what consequences do we see for such a
Multitude of stuff ups ???