CSLR puts ‘too much blame’ on advisers: Shadow minister

As the advice profession waits to find out how the additional $47.3 million that is attributed to the subsector under the Compensation Scheme of Last Resort (CSLR) for this financial year will be handled, the shadow minister has pushed for “fairness in who pays, and sustainability so the scheme doesn’t collapse”.

Speaking at the Association of Independently Owned Financial Professionals (AIOFP) conference on the Gold Coast on Wednesday, Conaghan said he has prioritised listening to advisers to “understand your challenges” since taking the role.

“You’re drowning in red tape and fees. I thought lawyers had it bad, but some of what you’re dealing with has surprised me. It feels less like consumer protection and more like punishment,” he said.

“The real tragedy is that all this regulation hasn’t stopped misconduct – it’s just driven good people out of the industry and made advice more expensive.”

Pointing to the Shield and First Guardian collapses, the shadow minister said the debacles clearly demonstrate that consumers are still being hurt in spite of the red tape constraining advisers who do the right thing.

“That raises a fundamental question: maybe we’ve been blaming the wrong people for too long? Maybe we should be looking harder at other players in the industry, and at why ASIC keeps dropping the ball?” Conaghan said.

While the losses from the latest large fund failures range in the hundreds of millions of dollars at a minimum, how much of that will be left for advisers to cover through the CSLR is yet to be determined.

Even without Shield and First Guardian, the expanding cost – which is likely to be even higher in coming years – has put the viability of the scheme in jeopardy.

“The CSLR was supposed to be a safety net for victims of bad advice,” Conaghan said.

“It probably had fundamental flaws from conception. But under Labor it’s become something else entirely – a runaway mess with costs spiralling out of control.

“It’s a scheme where too much of the blame is being put on advisers.

“You are paying for failures that were not yours – and in many cases, other players have more blame. You didn’t license the dodgy operators. You didn’t wave through the schemes that collapsed.”

According to the shadow minister, the regulator needs to shoulder a good chunk of the blame.

“Let’s be honest: if ASIC had acted earlier on known bad actors, far fewer victims would be turning to the scheme today,” Conaghan said.

“Yet the same government that insists on holding inquiries and commissions for everything else seems reluctant to look ASIC squarely in the eye.

“We’ve had years of reviews, reports and recommendations about ASIC’s failings.

“Yet every time a scandal breaks, we hear the same excuses: ‘We didn’t have the resources’, ‘We had to prioritise’, or ‘We need more powers’ – to my mind, they already have plenty of resources and powers.”

While Conaghan is yet to meet with the regulator, ifa understands he will be shortly.

Ultimately, he added, the CSLR “must be reformed”.

“I hope the government’s review produces real solutions by the end of this year,” he said.

“Advisers can’t wait forever. If we don’t fix this, good advisers will keep leaving, advice will become more expensive and consumers will be worse off.”