With the ASIC levy already imposing a significant burden, the industry is worried about the potential consequences when advisers are responsible for funding the CSLR.
While the government will cover the establishment costs for the compensation scheme of last resort (CSLR) and the expenses of the initial levy period until the end of the 2023–24 financial year, subsequent funding will rely on levies imposed on specific segments of the financial services industry.
The CSLR operator holds the key to levy amounts, but potential overrides of the legislated sub-sector cap of $20 million through ministerial determinations are permitted.
Last week, in response to the potential increase in levies charged to advisers as a result of the CSLR, the chief executive of the Financial Advice Association Australia (FAAA), Sarah Abood, said that while the body doesn’t oppose the scheme, it is concerned about past costs and the history of misdeeds in the sector, including those inflicted by Dixon Advisory.
“What is the CSLR going to do with a large number of complaints, for example, from Dixon? We are looking into who is going to pay for those,” Ms Abood said.
Dixon Advisory is fuelling concerns because nearly 2,000 former clients are seeking recourse under the CSLR, which is set to offer capped payments of up to $150,000 from April next year.
Earlier this month, David Locke, the chief executive of the Australian Financial Complaints Authority (AFCA), informed the Senate economics references committee that the total payout for all Dixon complaints would amount to $357 million.
Similarly, the administrators of Dixon Advisory have estimated that losses could reach $360 million.
Despite CSLR regulations requiring Australia’s top banking and insurance firms to pay a one-time levy to tackle the backlog of unpaid claims from AFCA complaints between 1 November 2018 and 7 September 2022 – which includes those made by Dixon’s wronged clients – the expected Dixon-related losses far exceed the $250 million cap mandated by the legislation for this levy period.
Additionally, any complaints filed on or after 8 September 2022, and not resolved by 30 June 2024, will be charged to the sub-sectors, which includes the financial advice profession.
Ms Abood acknowledged last week that while there is an intent from the government to “raise funding from the big 10” and the government itself will pay for complaints within a certain period, the FAAA is “watching very closely what’s left after that”.
“That will be a concern for us,” Ms Abood said.
“We want to make sure that we’re trying to achieve lower costs for advisers, which is an important part of achieving lower costs for consumers,” she noted.
“We’re doing a bunch of sums right now to work out what the potential impact is.”
The FAAA, in conjunction with other member bodies in the advice profession, has long argued that ASIC’s levy on the sector imposes an excessive financial burden on advisers. Now, with the impending CSLR costs, these concerns are reaching new heights.
Earlier this month, the corporate regulator revealed that the total cost attributed to the advice sector for the 2022–23 financial year is estimated at $47.6 million. Based on this data, the FAAA calculated that advisers will incur a final charge of $2,818 per adviser, in addition to the minimum levy of $1,500.
The company, which was haemorrhaging close to $100 million before tax just three years ago, has successfully navigated ...
According to the latest numbers from Wealth Data, Insignia is poised to drop to the third largest licensee based on ...
Market wrap report shows advice platforms are moving to expand their digital offerings and improve client outcomes
Never miss the stories that impact the industry.
Get the latest news! Subscribe to the ifa bulletin