The AFA has taken aim at the government in regard to its proposed compsensation scheme of last resort (CSLR), which would see the financial advice sector forced to pay over three-quarters of costs within the first year of the scheme.
The government has released a proposal paper and draft legislation of the CSLR – a scheme to meet the cost of unpaid AFCA determinations that arise as a result of a licensee being unable to pay or refusing to pay – which outlines that financial advisers will be slugged with a huge sum of the total levy cost alongside other sectors like credit providers, credit intermediaries and security dealers.
The proposal paper states that of the total levy cost in the first year, $16,024,155, the financial advice sector would be forced to pay $12,271,933, $7,447,180 (of $9,724,155 in total) the second year and an ongoing fee of $6,170,774 (of $8,057,489 in total) after four years.
“The $12 million is in the first year only and includes the set-up cost. This is a large sum of money being picked up by the financial advice sector at a time when they are already under significant cost pressure” AFA acting chief executive and general manager, Phil Anderson, told ifa on Friday.
“To us it simply seems unreasonable that financial advisers should pick up such a large percentage of the costs of this scheme.
“The scheme provides increased confidence for consumers and should therefore work to the benefit of all sectors of the financial services and banking industries and should be funded on a broad basis.”
Adding to that, managed investment schemes have been excluded from the draft legislation that would suggest that if a managed fund fails, the client would only be compensated if they take action against an adviser who recommended the product.
The AFA previously agreed to the introduction of a CSLR, however the association insists that support was on the basis that “financial advisers would not be expected to pick up the cost of product failures.”
“We are very concerned about the cost of this new scheme and the potential risk in the event of a black swan product failure,” AFA said in a statement.
Submissions on the draft legislation can be made to Treasury and close on 13 August.
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