There are “multiple black swan events” threatening the financial advice industry currently, according to the FAAA’s Phil Anderson, potentially substantially running up the compensation bill for advisers.
Appearing on a webinar with law firm Holley Nethercote, Financial Advice Association Australia general manager for policy, advocacy and standards, Phil Anderson, discussed the possibility of “black swan events”.
While a black swan is typically a rare occurrence such as Dixon Advisory, he said the industry is currently facing multiple instances in the form of Shield Master Fund and First Guardian.
Shield Master Fund is a managed investment scheme which has gone into liquidation while First Guardian is a fund run by responsible entity Falcon Capital which has also gone into liquidation.
He said: “We have multiple black swan events happening, you only have to read the news about Shield Master Fund and First Guardian to know there are some very dark clouds out there. We are talking hundreds of millions of dollars at risk with those two entities.
“And that’s not the limit, we saw two businesses last week where the licence was cancelled because of unpaid AFCA determinations which led to payments by the CSLR, so the clouds are disturbing.
“The problem is it takes a long time for these matters to work their way through, so we will be listening to and hearing stories about these firms for some time to come. I’m already hearing stories about clients who got advice who are 90–100 per cent invested in Shield or First Guardian, the losses will be substantial and the damage is disturbing.”
However, he was optimistic about changes and fixes being made to the Compensation Scheme of Last Resort to prevent the crashes decimating the advice industry via a large levy.
“I don’t know that it will be 100 per cent fixed, but the government understands this is unsustainable, and the more they read about Shield and First Guardian, the more they will understand that.”
Improvements to the CSLR have already been pushed by the FAAA as a priority for the incoming Labor government and new minister for financial services.
Speaking after last weekend’s election, FAAA chief executive, Sarah Abood, said: “We continue to urge the government to fix the CSLR so that financial advisers are not unfairly burdened by the cost of product failures. A cap on the advice levy and a more equitable funding model are essential.”
