On Friday, financial advisers were hit with a bombshell when the Compensation Scheme of Last Resort (CSLR) released its initial levy estimate for the upcoming financial year.
Calculated with independent actuaries Finity, the figure skyrocketed to a combined $77,975,000 across all sectors.
According to the CSLR, the funds will facilitate the body to process 1,800 claims across the pre-CSLR levy and the FY25–26 levy estimate and the payment of compensation for 491 claims in relation to the FY25–26 levy estimate – a threefold increase in processing volume relative to FY24–25.
The breakdown across industries hits financial advisers the hardest, with the vast majority of $70.11 million being attributed to the subsector – well in excess of the $20 million subsector cap.
The decision on how the additional $50 million will be paid has not yet been announced and cannot officially be made until after 1 July – after the federal election.
Ultimately, all that is for certain is that current Financial Services Minister Stephen Jones will not be the one making the final decision following his retirement announcement on Thursday.
Instead, it will either fall to whoever takes over from Jones if Labor wins the election or current shadow financial services minister Luke Howarth if the Coalition forms government.
Speaking with ifa, CSLR chief executive David Berry explained that the instrument for the $78 million will be lodged with Parliament on Tuesday, which will outline the cost to all four subsectors.
This is subject to a 15-day disallowance period, which could potentially be interrupted by an election being called. After this period is completed, the Australian Securities and Investments Commission (ASIC) can issue the levy.
“They can only issue the levy up to the subsector cap,” Berry said.
“So, while financial advice is looking at $70 million, ASIC can only levy up to the $20 million.”
This equates to a bill of $1,295 per adviser, leaving as much as $3,300 each still on the horizon depending on what the eventual minister decides to do.
“On the first of July, we can go to the minister and say that there is still a need for a special levy and it’s in line with the original estimate, or it might be different,” Berry said.
“What will happen prior to the first of July is we will do a revised estimate – we’re required to do that under the legislation. That revised estimate can be anything from nothing’s changed through to a full-blown actuarial assessment, through to a less detailed actuarial assessment.
“At this stage, because of the UGC (United Global Capital) assumptions, it will all depend on what we actually see over the next three months.”
While there is the possibility that the revised estimate could see a decrease of the levy amount, there is also a chance it goes even higher.
Regardless of what the revised estimate ends up being, it will be this number that the minister will need to allocate – however, this is once again subject to disallowance.
“They’ve got the three options we’ve talked about previously, which is ask us to go slow, they can ask us to pay in instalments, or they can levy other subsectors – or a combination of any of those,” Berry said.
“Once that minister has made that call and said, ‘OK, this is how we intend to fund the special levy’, that’s within their discretion as to the mix or how they do that, but they don’t have the discretion to just approve it. They’ve got to then put that through the parliamentary process, and it will go through a disallowance process again for the upper and lower house to approve.
“Once they’ve approved it, ASIC will be able to administer it.”
The CEO added that while he understands “this is not a message the financial advice sector is going to like”, the CSLR can only operate in line with the legislation.
“We’ve got a very administrative function, we apply the legislation,” Berry said.
“We don’t have the discretion to be, to differ from it, but we are highlighting to the parties that can make those decisions where there could be room for improvement.”
You are paying for ASIC’s failures and the Governments. Another Great Handball by the government because of the standards they set, and their own continuing failures to meet same.
ASIC should have designed forms/templates which all must use. This would ensure consistency and compliance. It would also be very easy to audit. Like the ATO do with tax returns.
ASIC’s failure to provide the means to ensure relevant aspects were covered, and their inability to monitor instead of react (too late), are a key cause for the CSLR’s existence. Successful monitoring would reduce this.
There is little point to have a regulator that is unable to help with successful implementation and proper oversight.
ASIC needs to be stripped of this role and a competent authority put in their place with forms available to cover the minimum requirements. Planners can further develop the templates, but without ensuring the bare minimum is covered, failures will continue and monitoring will remain more costly than it needs be.
Advisers also need to be on-guard and consciously self-regulate. Get rid of the weeds in the garden and rise above.
So what happens if each AFSL holder refuses to pay these CSLR bills for their advisers and sends them to Evans & Partners instead as follows?
E&P Financial Group
GPO Box 105 Sydney NSW 2001
I pay my PI, I pay my ASIC fees, I pay remediation if there’s an error. I’ve never had a single PI claim across myself and the business with 7 advisers in over twenty years of operation. What reward do I get for running a quality business, extra fees because some other businesses operated outside of regulation. Fees because the CSLR allocates product failure to the advice sector due to the poor legislation.
This means only 1 thing. My fees to clients will increase further, making more that need advice no longer being able to afford it. I look forward to more advisers going bust so we pick up their premium clients and drop off more of our marginal clients. It’s the only way to survive the way this industry is regulated.
No adviser should pay for someone else’s crime
Its so sad that Advisers in this country can not stand up for themselves we really do need a united voice
What an absolute disgrace this is once more decent hard working advisers are left to fund the wrongdoers who ASIC have eventually caught up with ( years to late )
The guilty get away with murder and the innocent are left to pay absolutely pathetic situation by all political parties with the politicians retiring with big pensions