The drastically escalating costs of the Compensation Scheme of Last Resort (CSLR) have caused growing concern among financial advice professionals, particularly as it relates to the costs of the Dixon Advisory collapse.
Earlier this month, an update from the Australian Financial Complaints Authority (AFCA) noted a further 544 complaints about Dixon Advisory have been made since 15 February 2024, which means the financial advice profession will have to pay an estimated additional cost of approximately $65 million.
This equates to a direct cost to every financial adviser of $4,165 on top of what has already been disclosed by the CSLR, which the Financial Advice Association Australia (FAAA) said is a “huge impost for the financial advice profession that is already dealing with declining numbers and spiralling costs”.
These “spiralling costs” have caused advisers to contemplate drastic measures.
Dr Paul Moran, principal of Moran Partners Financial Planning, told ifa that in his eyes, advisers should boycott the CSLR levy until the Dixon issue has been resolved.
“That’s where I would start, with a boycott of the CSLR until that was resolved, which would put some pressure on the government to make that change,” Dr Moran said.
“However, I’m not convinced there’s not enough people amongst the profession who would do that, and therefore that’s why I don’t think it’ll actually work.
“You need to get 60–70 per cent and actually have rallies, that sort of stuff, and they would have to probably be driven by an organisation like the FAAA, and I can’t see them taking on that militant role.”
He added that ultimately, there would be enough people who would simply pay the fee to then make the ones who don’t pay compromised.
“People are unwilling to stick their heads up for fear of being identified by ASIC as troublemakers and potentially being targeted by ASIC,” Dr Moran said.
“Now I don’t know whether that would happen or not, but there’s definitely people who are gun shy of compliance and issues around sticking their head up.”
Gayle McKew, a financial adviser at Prosperity Planning, also believes that a boycott of the levies would be an effective but unlikely method to protest the unfair cost to advisers.
“When it comes down to it, there will be people that will have the guts to stand up and go, ‘I’m just not going to pay it’,” she told ifa.
“But the problem is that all of our assets are basically on the line, if we take an ethical and moral stance on the fact that we shouldn’t be paying for errors that were not our problem.”
Similar to Dr Moran, McKew also said that it would require a combined effort from advice associations to be able to work in practice.
“The FAAA indicated that they are representative of the best part of really 11,000 advisers, they and the AIOFP, which I understand looks after about 4,000 advisers, would need to get together and basically say, ‘go away, we’re not going to pay those levies’,” she said.
‘Very severe strategy’
FAAA general manager policy, advocacy and standards, Phil Anderson told ifa that advisers boycotting a mandatory levy would be a “very severe strategy” and “high-risk” too.
“The first key point to make is that the invoices for the CSLR will be issued to licensees, not to individual advisers and you’ve got more significant issues with respect to the consequences of non-payment,” Anderson said.
“It’s a strategy where you would be putting all your eggs in one basket and keeping your fingers crossed. It’s probably too risky. Because the regulator could just say, ‘Well, we’ve got remedies that we can take for people who don’t pay the levy and that’s exactly what we’re gonna do’.”
He added that the FAAA would be concerned about endorsing a course of action that could have a significant negative impact on advisers’ businesses.
“It’s a little bit like a civil disobedience program. I think there’s a range of other options that we would pursue first. You don’t want to, as a professional association, be calling on members to put themselves at risk in that respect,” Anderson said.
Alternative options
Dr Moran explained that it isn’t just the CSLR levy causing cost concerns for advisers, but also the increased ASIC supervisory levy.
“To pay an ASIC levy, when most advisers would say ASIC has failed to act quick enough to identify bad actors by focusing on minute details, and then the CSLR levy comes in and is retrospectively going to be funding the actions of a single, large bad actor before the thing was even in place and asking us to pay for that as well. It’s just one thing on top of another,” he said.
Looking beyond the possibility of a boycott, Dr Moran said that the best course of action to make some dent in the impact of both the CSLR levy and the ASIC supervisory levy is to pass the cost on to clients with a direct explanation.
“The next option to me was to make it explicit for each practice to work out what the relevant levies were on a per client basis and explicitly add that to the annual fee agreements or fee disclosure statements,” he said.
“Charge an explicit additional fee for all our clients with an explanation as to why that fee is there.
“The 15,000 or 16,000 advisers left, we might have 100 or 120 clients – you’re talking about 1.6 million Australians who are going to get an annual statement with an explanation of why we’re charging this explicit additional fee. I don’t know whether this government will care about that. But it makes the point.”
McKew added that advisers need to be “actively communicating” the challenges with their clients.
“It gives them the opportunity to go and speak with their local members, their MPs, all of those people that can make a difference at a decision level in Parliament, because effectively, we have to do the same thing,” she said.
“We have to be speaking to our federal members, our local members or anyone who has an influence within the political arena that can make a difference. I wrote to all my clients a couple of weeks ago.”
Both advisers agreed that something like the CSLR is important to provide restitution to clients that are unable to find it elsewhere, but the way it is set up currently is not fit for purpose.
“I know consumers need protection. But the things that they’re trying to protect them from have effectively been fund failures, scams, abject stupidity on behalf of some clients. I support it, I just don’t support the funding mechanism,” McKew explained.
Dr Moran added: “I don’t think there’s any issue around a compensation scheme to last resort being in place, the issue is the retrospective nature of the funding model.”
It’s also a high risk strategy to do nothing.
You need to stand for something…or fall for anything.
Its high time to stand up rather than to put up.
…and as a licensee, I am more than willing to boycott this. Ahs anyone considered that if this invoice is sent to the AFSL, that that invoice might be enough to place the AFSL into a negative equity? Might be interesting.
As a licensee, I do not agree with the funding model at all, although I do agree with regards to the concept of the CSLR. The issue I have, is the the product manufacturers, the people whose products have the potential to fail in the first place, are not contributing to this model.
The real issue is that the personal financial advice industry has become the soft target, the industry levy is not placed on the entire advice industry, only those registered as ‘relevant providers’. Those providing general advice are left out, which is the vast majority registered with ASIC, but it is the relevant providers (registered financial planners) who are paying for the, and now the CSLR.
The inequities of both these regimes is utterly remarkable. For example, ASIC wins a case, and the culprit fined, those monies should be put to the ASIC litigation pool, but its not. ASIC can keep increasing its regulatory action at our expense on a reducing number of advisers, and now the CSLR.
The burden needs to be placed on the entire financial services industry, not the soft target that has very poor representation and a reducing member pool, caused by this inequity, unlike the rest of the this industry who have the FSC, ABA, Industry Super tc with actual political clout.
NH
FAAA continuing to deliver platitudinal drivel whilst remaining happily impotent.
Individual members please contact FAAA immediately and demand this (boycott) action of them.
When Govt law and policy become unfair and unjust, resistance becomes mandatory.
Can the FAAA please let their members know where they can get a loan from to stay in business? If someone hands me an invoice for $5,000, I am not able to pay it. If I stay in business and keep going further in debt, I guess I can simply declare bankruptcy and I can do so with a clear conscience knowing my debts will be paid. Yet another great outcome, all designed to boost union owned superfunds, just like every decision for past 30 years.
Advisers expecting their pussyfoot associations to do anything about this real issue is like being a passenger on the Titanic whilst the captain says nothing to see here please remain calm and stay in your cabins!
The best message you can send would be to resign as members and if most of you did that then they would cease to exist and given their lack of any significant wins in the past 20 years you would not be any worse off in fact you would save the fees you waste by being a member.
Given how the advice community behaves I bet most of you will simply read this and move on without taking any action and reluctantly pay the CALR fees begrudgingly because you feel you have no other choice…
You always have a choice it just takes action!
Well said..
I’m a cfp and just received renewal.
I’m not renewing for exactly these reasons. They don’t have the ability to fight.
They’re a bit of a bore tbh
I fully agree. I gave up membership years ago.
Phil is right, the CSLR will be issued to licensees not to individual advisers to fund, so it will be paid up on time and any talk of a boycott is completely impractical. The licensees will pay the full amount without a word of discontent, then take the CLSR fee from the adviser cash flow, along with PI, Licensee fee, ASIC Levy and others before an adviser can even turn the lights on in 2024. The licensee space offers ASIC its Generals to keep the foot soldiers (advisers) in line & what obedient cannon fodder we’ve become
I am not sure what more course of action the FAAA can do and if they have done everything in their power to highlight this unfair situation to politicians and Regulators, What about the big Licensees what are they doing about this I dont think they have said a thing (I work for one of the largest Licensees) another reason that justifies not having AFSL system and going straight for individual registration.
The politicians dont understand or dont care Stephen Jones said there is nothing wrong with the CSLR.
ASIC should also be held accountable for this as it is due to their failure to investigate and quickly act in the Dixon Advisory case and Melissa Caddick case(who wasnt even an adviser she was a fraudster posing as an adviser yet the media still calls her an adviser) that has lead to such large claims on the CSLR. If they had acted quicker less consumers would be harmed, this is their main job yet they only act once they have seen enough harm done to consumers to justify spending their time on an issue.
ASIC needs to have a dedicated reporting only for advisers to report misconduct that we see by other advisers, this is also a requirement by the code of ethics. I have reported multiple bad actors not just other advisers but property investment advisors, early access to super schemes etc, yet I have not had one response to any of my reports, I dont even bother reporting anymore now its not worth my time even though I was trying to reduce harm to consumers and also improve the reputation of our industry and reduce the burden on the CSLR.
Evans & Partners and the Dixon family should be footing the entire bill for this how have they been able to wash their hands off this and walk away.
This whole system needs a rethink of how it is funded, I think large licensees with a large amount of advisers should have to pay a % of their revenue on top of their individual advisers paying the CSLR fee, but those licensees should not be able to pass on that % Revenue fee on to their individual advisers as they would definitely do.
I had taken time off since the royal commission and the whole mess that ensured due to starting a family, what I have seen is the government and regulators virtually destroy the industry with such a mass exodus of advisers due to their overregulation, under recognition for experienced advisers in terms of education.
I think new advisers doing a bachelors of financial planning at a minimum is perfectly sensible and no I do not think that career changers should be given any exemptions unless they have directly studied very similar topics or their work has exposed them to this(high school teachers do not count, maybe university lecturers), they can do a Grad Dip of Financial Planning that is 8 units(If they are accountants or lawyers, they could be given an exemption for Tax/ethics/estate/economics units as they would most likely have studied this or had work experience in it)
If this industry continues in this path I am just going to be an adviser at one of the big super funds, sure I will not be giving the best advice to clients (I will essentially be a product adviser of that super fund and no one benefits in that scenario except the super fund and the internal adviser) but there is only so much that one person can take before they are broken I am too invested to change careers and I love this job but I am not gonna continue if the regulators and government do not listen to reason and logic and keep making life impossible for us.
FAAA is a lobby group that represents us…just look at the way the Union reps bring the Govt to heel…FAAA is nit doing that for us..and they should.
“If a quack representing himself as registered Doctor was to kill or maime a few patients, I don’t see the AMA accepting that all the doctors need to pay a levy to compensate the victims. This is what is being asked of advisers in the Melissa Caddick case.
Similarly, I don’t see all accountant having to pay a levy to compensate victims of PwC or other accounting misdemeanours.”
The above is very true. ‘QAR is touted as providing advice for those that can’t afford it’ Yet they constantly drive the planners to the wall so we have to charge to survive. Stephen Jones and his ilk should be outed at the next opportunity they are just trying to bring the industry down and it started with Bill Shorten when he was president of the industry funds.
Perhaps the FAAA could run an anonymous survey of its members to ask for feedback on the CSLR. One question only:
1. Would you support a boycott of the CSLR?
Should results come back as expected. The FAAA could then say it has sought it’s members intent on this issue, represent it’s members intent by taking these results back to Government saying their members are willing to boycott and bring them back to the table to negotiate a fairer deal. A message may finally cut through.
Definently, they need to be acting for us, not for them. To act for us you need to ask us what we want.
Maybe if we stood up for once we wouldn’t be railroaded all the time,
I think for once we need to all take a day off work and go to canberra and actually fight for what we thing is right
The general public have no idea the crap we are being put through, this dosent pass the pub test.
Hilarious, you think the FAAA actually cares enough to survey members on their opinions.
All Advisers and All Associations need to tell Govt, ASIC, both Levies to get real.
If we ALL took the nuclear option then it will work.
Wake up Associations
Wake up Adviser’s
We are played like stupid little toys for ASICs pleasure.
WE NEED TO STOP THIS RUBBISH
Time for an Adviser Eureka Stockade!
One has to ask….what and where is the PI insurer involvement in all this ???
Questions remain, why are the advisers paying for someone else’s action, and why is ASIC not being held responsible for not doing their job? I do not know of any other industry that has to face this kind of nonsense.
Basically, advisers have been battered into submission and the govt knows it.
Then it really is time to fight back.
Useless ASIC are never held accountable for not doing their job.
– Storm Financial ASIC did nothing
– Banks FFNS ASIC did nothing until forced to post RC.
– Dixon’s Dodgy MIS and ASIC yet again does nothing with a decade of warnings.
It’s a good point regarding standing up. I posted about the CSLR on LinkedIn last week for the first time.
My LinkedIn account is pretty dormant, but I noticed a day after posting that one of my profile views was from someone claiming to be a “Public Safety Professional in the Investment Management Industry.”
Who knows what that’s all about.
If a quack representing himself as registered Doctor was to kill or maime a few patients, I don’t see the AMA accepting that all the doctors need to pay a levy to compensate the victims. This is what is being asked of advisers in the Melissa Caddick case.
Similarly, I don’t see all accountant having to pay a levy to compensate victims of PwC or other accounting misdemeanours.
In the Dixon case, regulators say mum when they took out full page ads in the AFR and elsewhere promoting themselves. It is likely that the Dixon family are still enjoying their yachts and holiday homes, while we bail out their victims.
In the end though I don’t blame the regulators…they will do what they can to cover up their failings…it is the AFA/FPA/FAAAs who have repeatedly let their members down by acquiescing at every turn…going all the way back to Trowbridge (remember that?).
The FSC has been very keen to get its nose in the advice space. Nothing but crickets from them re this issue. Now’s your chance to show us what you’ve got FSC.
Bet they remain silent…!
FAAA needs to take out full page adds in every major newspaper letting the general public know of the Govt/ASIC etc failings. The days of the FAAA just being ‘disappointed’ need to be over and they need to actually be more aggressive.