MenuIn its submission to the Treasury consultation on the Compensation Scheme of Last Resort (CSLR) Special Levy for 2025/26, the FAAA says it is imperative that financial advisers should not pay more than the $20 million sector cap.
CEO of the FAAA Sarah 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.
“It’s not appropriate to ask financial advisers to pay more than the sector cap. 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.
“Through the inability of the scheme to attribute loss more broadly, the advice profession is unreasonably expected to carry the vast bulk of the load. The major collapses that we have seen so far, including Dixon Advisory, United Global Capital, Brite Advisory, Shield and First Guardian, each point to a key product failure element. To attribute all these losses to financial advice and to provide no mechanism to allocate these losses more fairly will result in the CSLR becoming unsustainable and ultimately collapsing.
“We are aware of suggestions that the sector or sectors considered most ‘culpable’ should pay the excess. However, those paying the levies are already not those responsible for causing the losses. 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.
“In our view it would not be appropriate that consumers should miss out, by delaying payments to them until the cumulative sector cap payments are sufficient to cover their full losses. 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.
“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.
“Importantly, deciding what to do with the special levy does not fix the fundamental flaws in the funding model of the CSLR. 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. We call on government to reinstate the recently discontinued Senate Inquiry Into Wealth Management Companies, and broaden its scope to include the collapses of Shield and First Guardian. 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.
