Major bodies in the financial advice industry have declared their collective opposition to the compensation scheme of last resort (CSLR) proposed by the federal government in mid-July, claiming it will make advice less affordable and accessible.
A joint statement from eight financial advice industry associations stated that while they are supportive of a CSLR, the design of the scheme proposed by the government in draft legislation released for consultation would be expensive to operate and departed from the financial services royal commission’s recommendation.
Chartered Accountants Australia and New Zealand, CPA Australia, the Financial Planning Association, Institute of Public Accountants, SMSF Association, Association of Financial Advisers, Stockbrokers and Financial Advisers Association and Boutique Financial Planning Principals Association stated their primary concern is the compensation scheme will become a first response option rather than a last resort.
The bodies noted the draft legislation will establish a CSLR to include the Australian Financial Complaints Authority’s (AFCA) outstanding expenses, while failing to address the causes of unpaid consumer compensation.
“The associations are concerned the scheme may not be used purely as a last resort. This is a major and unwarranted departure from the royal commission’s intent,” they stated, pointing out the royal commission recommended the use of a CSLR “once all other avenues had been exhausted”.
The bodies highlighted the draft legislation would establish the CSLR operator as a subsidiary of AFCA and would require the Australian Securities and Investments Commission (ASIC) to administer invoices and payments, adding costs to the advice sector for a limited consumer benefit.
The statement noted the ongoing increases in ASIC’s fees and levies over the past three years, with much of the burden falling on sole trader or small business advice practices, were likely to push more advisers out of the sector.
The groups also highlighted the draft legislation was inequitable as responsibility for consumer losses will not be shared among industry participants, including product manufacturers.
“This means that manufacturers whose products are poorly designed and improperly fail won’t have to contribute to the compensation scheme,” they said.
The eight associations will make separate submissions to the government based on the issues raised in the joint statement.