The Financial Advice Association Australia (FAAA) has met with Financial Services Minister Stephen Jones to voice its concerns about the levy that will be imposed on advisers through the Compensation Scheme of Last Resort (CSLR).
Specifically, FAAA chief executive Sarah Abood and chair David Sharpe highlighted the financial burden the advice sector is expected to bear, with costs projected to exceed at least $18 million for the 2025 financial year.
They also questioned whether the CSLR will truly function as a last resort for compensation claims arising from financial misconduct after noting the scheme might discourage legal action against firms involved in such behaviour.
“We have told the Minister that although we support the scheme, the funding model is completely unsustainable. The financial advice profession does not have the capacity to pay compensation to the clients of large listed entities which have done the wrong thing and nor should we,” Abood said.
“We are looking at losses approaching $135 million for Dixon Advisory alone, with nothing in place to stop similar situations happening in the future.
“We believe the Minister has clearly heard these concerns and is genuine in his intent to work with us to ensure that the CSLR achieves the goal that we all support.
“He has advised us that the FAAA will have the opportunity to work with Treasury to outline unintended consequences of the CSLR and listen to pragmatic and feasible solutions.”
The industry body also repeated its call for an inquiry into the collapse of Dixon Advisory after its parent company, E&P Financial Group, placed it into administration, appointed former advisers and transitioned most of the failed firm’s clients to a new business.
“We have also called on the government to pursue a public inquiry into what really happened at Dixon Advisory. With potential losses approaching $400 million, there is a clear public interest in understanding what has happened and how similar situations can be prevented in future,” Abood stated.
In a separate but related development, the Australian Securities and Investments Commission (ASIC) has cancelled the Australian financial services licence (AFSL) of national advice business Libertas Financial Planning Pty Ltd.
This marks the first time ASIC has cancelled the AFSL of a firm for failing to pay compensation under an Australian Financial Complaints Authority (AFCA) determination since the CSLR came into operation.
Under CSLR rules, if the scheme makes a payment to an eligible consumer based on an AFCA determination and notifies ASIC of the firm’s failure to pay the compensation, the corporate regulator is required to cancel the firm’s AFSL.
AFCA made its determination against Libertas on 24 July 2023 and a year later, following the firm’s failure to pay, the CSLR paid an amount of compensation to a person in relation to the determination and notified ASIC. On 14 August 2024, the regulator cancelled Libertas’s AFSL.
