The compensation scheme of last resort (CSLR) has unveiled its estimates for the first and second levy periods to fund compensation claims for victims of financial misconduct who have successfully lodged complaints through the Australian Financial Complaints Authority.
The CSLR has projected a total of $4.8 million will be required to fund compensation claims and costs in the first levy period from 2 April 2024 to 30 June 2024, with funding to be provided by the federal government.
Projections for the second levy period indicate a total of $24.1 million, with $18.5 million slated to be sourced from a levy imposed on the financial advice sector over the next financial year.
Financial Advice Association Australia chief executive Sarah Abood expressed disappointment at the cost of the levy, which the industry body estimated could be as high as $1200 per financial adviser.
“The CSLR is intended to promote trust and confidence in the financial services sector and, in particular, financial advice. However, if advisers are driven out of business by rising costs through being made to pay for the poor behaviour of those who left the sector years ago, there won’t be a financial advice sector left to have confidence in,” Abood stated.
“Coming as it does on top of a historically high Australian Securities and Investments Commission levy, this flies in the face of making advice more accessible and affordable for consumers, which is the stated aim of our government.”
She further argued it was unfair for today’s financial advisers to bear the cost of compensating victims of past financial misconduct cases, pointing to the Dixon Advisory case in particular.
“We have been supportive of the scheme in principle, while calling out that the scope is too narrow – through not including managed investment schemes, and that the scheme must not apply to financial adviser small businesses in a retrospective manner. This expectation is consistent with both the Ramsay and Hayne recommendations for the establishment of a CSLR,” she said.
“However, unfortunately the emergence of the Dixon Advisory ‘black swan’ event, and the shortening of the initial period which is funded by the government, appear to have had a highly retrospective and negative effect.
“It is extremely concerning that because of these issues, the high-quality and compliant financial advisers of today are being asked to fund compensation for the clients of Dixons, a firm which has been in administration now since January 2022 – over two years ago and long predating the establishment of the scheme.”
The estimate for the second levy period is currently under review during a “disallowance” period, during which parliament can raise objections within 15 parliamentary sitting days after the legislative instrument’s publication on the Federal Register of Legislation.
Following this review period, ASIC will collect the levy from financial firms on behalf of the government.