In its submission to Treasury, the Financial Advice Association Australia (FAAA) argued that advisers should not be forced to pay above their $20 million annual sector cap, with the excess instead allocated across other financial sectors with greater capacity to pay.
In a statement accompanying the submission, FAAA chief executive Sarah Abood said the extra charge on advisers is practically a death sentence for the profession, the Compensation Scheme of Last Resort’s (CSLR) structure is fundamentally flawed, and delaying compensation is no solution.
Abood said: “We have proposed that the amount above the $20 million sector cap for financial advice – $47.3 million for this year – be allocated to the broadest possible range of sectors, on the basis of capacity to pay.
“If the levy is spread as broadly as possible, it is likely to be more sustainable and pose less risk of threatening the viability of any one sector.”
She warned that most advice firms were small, privately owned businesses with little ability to absorb further regulatory costs.
“It’s not appropriate to ask financial advisers to pay more than the sector cap,” Abood said.
“The $20 million sector cap is already very high, particularly when you bear in mind that the vast majority of this levy is paid by small, privately owned firms with very limited capacity to absorb extra costs.”
The CSLR was legislated in 2023 to compensate victims of financial misconduct up to $150,000, but escalating claims from collapses such as Dixon Advisory, United Global Capital, Brite Advisory, Shield and First Guardian have blown out costs far beyond original projections.
Abood argued the current structure unfairly forces advisers to carry the brunt of failures that often originate in product design, management or oversight.
By failing to provide a mechanism to allocate these losses more fairly, she warned, the CSLR is at risk of becoming “unsustainable and ultimately collapsing”.
The CEO also rejected suggestions that sectors deemed “most culpable” should be targeted for the excess levy, arguing this would be impractical and destabilising.
“Those paying the levies are already not those responsible for causing the losses,” Abood said.
“This approach would also not be repeatable, as each year the minister would need to determine the sectors responsible for the future CSLR claims expected, as well as their capacity to pay – without a court case or other proceeding for guidance.
“Finally, this approach would not give any sector any certainty or ability to plan for future costs.”
Delaying compensation until cumulative caps are reached was also ruled out by the CEO.
“It could take many years for consumers to receive compensation using this approach, people who are, in many cases, elderly and have often already been waiting years for restitution. It is unfair and inappropriate to ask consumers to wait even longer for desperately needed funds,” she said.
Abood also on Tuesday reiterated calls on the government to reinstate the dumped Senate inquiry into wealth management companies and broaden its scope to include Shield and First Guardian.
“Deciding what to do with the special levy does not fix the fundamental flaws in the funding model of the CSLR,” she said.
“As the Shield and First Guardian scandals show, failings in the financial sector often incorporate a range of players, including responsible entities, investment managers, research houses, superannuation funds, platforms, advice licensees, advisers and auditors.
“These failures are complex and must be fully investigated to ensure we understand what went wrong – and how to stop them occurring in the future.”
Abood added that until the CSLR’s funding model was fixed, the very future of professional financial advice was at stake.
“Consumers are entitled to feel safe when engaging with regulated financial services, and every sector in financial services benefits from consumers having confidence in the system. It is thus appropriate that all contribute to consumer compensation when one sector has reached its capacity.”
Last week it was revealed that the Senate’s inquiry into Dixon Advisory and wealth management companies more broadly – which lapsed at the end of the last Parliament – would not be remounted.
At the time, Abood said the association is “deeply disappointed” that the committee will not continue the inquiry.
“The decision to end the inquiry seems extraordinary, particularly in the light of recent news about the collapse of Shield and First Guardian, potentially involving over $1 billion in consumer losses from their super,” she said.
Since the news broke, ifa has been in contact with many across the profession who are equally as shocked by the announcement.
