Treasury’s CSLR reform consultation ignored multiple options that could materially address the “emerging catastrophe” for financial advice businesses, according to an FAAA submission.
While the association expressed (qualified) support for some proposals put forward in the consultation – such as extending subrogation rights, revising the “but for” test and allowing the CSLR to deduct other payments from compensation – the submission highlighted a range of strategies that “ought to be investigated”.
These include:
- Amending AFCA rules to allow clients to make complaints against super funds and managed investment schemes,
- Allowing AFCA to apportion client loss to related parties, even when financial advice laws have been breached,
- Developing an “early warning system” to detect “unusual behaviour” before it becomes widespread misconduct, and
- Improving alignment between “the period that the levy relates to [and] the data used to calculate it”.
In line with recent (and not-so-recent) FAAA commentary, the submission also recommended including managed investment schemes “as a separate primary sub-sector” within the scheme.
While the MIS sector could be leviable via the government’s proposed “waterfall” funding model for the CSLR, the FAAA argued that the current proposal is “fundamentally unfair”.
“The proposed waterfall framework has merit [but] needs some changes to ensure fair and sustainable outcomes. As proposed, if the level of cost that was incurred for 2025/26 were repeated, it would leave the financial advice profession in a materially worse position,” the FAAA said.
The submission continued: “The proposal that the financial advice sector should pay the first $40m before any other sector is forced to make any contribution is fundamentally unfair. Firstly, this fails to take into account the small business
nature of financial advice, where the capacity to bear additional costs is much reduced.
“The proposal as it stands simply locks in the reality of this lack of a level paying [sic] field, particularly where other sectors have been so prevalent in all the major cases from Dixon Advisory to Shield and First Guardian.
“It is fundamentally unfair and unsustainable that other sectors connected to wrongdoing, such as MISs, should be allowed to wait until the financial advice profession has paid $40m before they are expected to contribute a single dollar.”
The submission made five key recommendations to address these concerns. These are:
- Creating a government-funded entity to “vigorously [pursue] all parties who have contributed to the failure of a financial firm that has resulted in unpaid AFCA determinations”
- Removing the “but for” test and compensating solely based on capital loss
- Restricting the levy burden for the advice sector to $20 million
- Modifying the waterfall framework based on the above $20 million limit
- Allowing the recovery of losses from corporate groups
“The [CSLR’s] complete lack of fairness and a level playing field … must be addressed. Other sectors involved, in particular MISs and super funds, should be able to be pursued by impacted clients who have suffered a loss,” the FAAA said.
“Much is wrong with the way that the system currently works that needs to be fixed – and it needs to happen quickly.”
Just got our bill another special levy to pay for. Another 2K gone.
Not easy for a small business to keep propping up these government agencies.
Talk about taking from the cat to give to the pigeons.
All I can say is –thank goodness for the FAAA. They are the only ones standing up and fighting the gross unfairness of this monstrous and unfair impost on small financial planning firms, who are being forced to fund the losses caused to investors by dishonest and incompetent advisers and firms. And a complete pox on ASIC and The incompetent politicians who have not acted to enforce responsibility on those caused the losses