In a submission to Treasury’s consultation on the blowout in the Compensation Scheme of Last Resort (CSLR) subsector cap, the lobby group warned that the cost burden is disrupting recruitment in an industry already struggling to retain and attract talent.
“New entrants are faced with significant levies before they raise any revenue,” the SIAA stated in their submission.
“We are also concerned that increasing levies will result in increased numbers of financial advisers leaving the industry.”
The financial advice profession is already under stress from a steady flow of advisers exiting the industry, coupled with a lack of fresh graduates choosing the career. With the advice gap widening, the SIAA cautioned that current levy settings risk entrenching shortages and pushing up costs for consumers.
The association said the impact of the CSLR and ASIC levies is compounded by a suite of other rising charges, including ASX and AFCA fees.
“Our members are experiencing increasing operating costs across the board with service inflation resulting in higher staff and vendor costs,” it said in the submission.
The general rising costs of running a financial advice business is also highlighted as a compounding stressor on businesses.
Escalating compliance, legal and technology expenses were also cited as compounding stressors, with the association pointing to “increasingly complex and onerous regulatory obligations as well as regulatory reforms resulting from the DBFO package”.
The SIAA took aim at the “repeatability” of special levies imposed “year after year”, often targeting the same subsector. It branded the approach “a flawed scheme design year after year” and “an imposition” that risks undermining the viability of advice.
“A scheme designed to protect consumers should not render a subsector unviable, which repeatability will do,” the SIAA added.
“The architecture of the scheme needs to be fundamentally changed to ensure that the requirement for a special levy does not arise or arises only rarely in response to a ‘black swan’ event.”
The group warned the rising cost base is choking off pathways for professional year advisers, with many firms unwilling to take on trainees because of slim margins. Those who do secure positions often leave the profession quickly, the submission said, with their lower wages exploited and their professional development “frozen” in some cases.
Start-up advisers are also being deterred, with the upfront cost of launching a practice making it near impossible to generate long-term revenue without existing foundations.
Ultimately, the SIAA argued the CSLR in its current form “cannot continue without significantly impacting on the financial viability of providing personal financial advice to retail clients”. Without reform, the group said, new entrants will continue to shun the sector, making adviser expansion to meet future demand increasingly difficult.
The consequences, it warned, will be borne by consumers.
“These ballooning and unsustainable costs will be passed on to consumers thereby increasing the costs of advice and making it less accessible,” the SIAA said.
