The Compensation Scheme of Last Resort (CSLR) has determined the estimates for the first and second levy periods that will fund claims from eligible consumers who have been the victims of financial misconduct.
As outlined in the legislation for the CSLR, the first levy period will be funded by the Australian Government and the second levy period by the sub-sectors of the financial services industry that are covered by the CSLR.
This is in addition to the already-announced pre-CSLR complaint estimate for the levy that will be paid by the 10 largest banking and insurance groups in the establishment phase of the CSLR. This provided $241 million as an initial funding estimate including provision for the majority of claims involving Dixon Advisory and Superannuation Services (DASS).
CSLR has provided a first levy period estimate of $4.8 million, which falls within the scheme’s annual levy cap of $250 million. As outlined in the legislation, the first levy period estimate will be funded by the Australian Government. This estimate is expected to meet eligible compensation claims and costs from the CSLR’s commencement on 2 April 2024 to 30 June 2024.
While financial firms will not contribute to the first levy period, CSLR noted the estimate falls within the legislated annual levy cap of $20 million for each subsector, with the estimate for each sub-sector being:
- Financial advice $2.4 million
- Credit provision $0.7 million
- Credit intermediation $0.8 million
- Securities dealing $0.9 million
In addition, CSLR has provided a second levy period estimate of $24.1 million, which also falls within the scheme’s annual levy cap of $250 million and within $20 million subsector cap.
This estimate is expected to meet eligible compensation claims and costs from 1 July 2024 to 30 June 2025.
The estimate for each sub-sector is:
- Financial advice $18.5 million
- Credit provision $1.5 million
- Credit intermediation $1.8 million
- Securities dealing $2.3 million
The second levy period estimate is subject to a “disallowance” period, with the Federal Parliament having the opportunity to object to the estimate within 15 parliamentary sitting days of the legislative instrument being published on the Federal Register of Legislation.
Once 15 parliamentary sitting days has elapsed, ASIC will issue the levy for each of the financial firms and collect the levy on behalf of the Federal Government.
The estimates for the first and second levy periods are based on actuarial principles, as required by legislation. The CSLR engaged the services of a leading actuarial consultancy, Finity Consulting, to establish a policy for determining the estimates and to conduct detailed modelling and analysis for each estimate. This work was reviewed by a second, independent actuarial consultancy, Taylor Fry.
The CSLR board said: “These latest estimates are another milestone towards the CSLR being able to meet compensation claims from the victims of financial misconduct. We are committed to a robust and rigorous process that allows us to make the best estimates based on the best information available.”
The funding will pay for compensation claims of up to $150,000 to eligible consumers who have been the victims of financial misconduct relating to personal financial advice, securities dealing for retail clients, the provision of credit or the arranging of credit.
There is one thing that I leant about in the 1980’s was how to influence politicians in election campaigns.
During this period, I was a State Delegate representing the Bruce Beard on State Council for about 10 years. Our office on Pennant Hills was used as a communication hub for the Liberal Party to receive calls from Booths throughout the electorate with the latest voting count.
I was also a Booth Captain representing the Liberal Party.
One could call me a rusted on Liberal voter.
Over the last 4 years since Hobart, I have come to know Stephen Jones and prior to this election, I believed that he would fix many of the issues confronting our profession.
At the last election, I not only voted Labor for the first time since 1972, I also actively campaigned to try and secure I what interpreted as a vulnerable seat near me – Bennelong John Howards old seat.
I did this by communicating with every pensioner group, Rotary Groups, View Clubs etc with the achievements of the Labor Party over the last 80 years.
This included the PPS (Affordable Scripts), Medibank, Medicare, Deregulation of the Banks, Floating of the Australian Dollar, Superannuation, and the NDIS scheme.
These benefits are very important to older Australians and all I pointed out is who made these changes and why they should vote Labor as they rely on them today to make their life more affordable.
The only notable achievement by the Liberal Party was the Future Fund.
The Liberal Party opposed most of Labor’s achievements.
The Liberal Party lost the seat of Bennelong, and my campaign would have contributed to that loss.
If we are to succeed in influencing either party, you must do so at a grass roots level, for example we must attack Labor on Cost of Living as that is their Achillies heal right now.
The Liberal Party is also vulnerable on the same issue.
Unfortunately, our clients don’t necessarily believe that fees imposed on us will cause an increase in their fees. We know differently.
When we undertake reviews, we point out to our clients the high level of compliance we must undertake and the impact this has on their fees, however this will not change the voting intentions.
It is only personal safety, and the hip pocket nerve are the only ones that cause their vote to change.
Look at Queensland and you will understand why the Labor Government is in fear of losing office. In November 2024, they will be in opposition, because of both issues.
If we surveyed our clients and asked them which issues were important to them, I am sure that we would get a better understanding about the issues that really matter to them.
I urge all financial advisers to get behind the AIOFP in its efforts to influence both Labor and Liberals to reform our compliance nightmare.
Look at what Mortgagee Brokers achieved by being united.
To achieve a pollical outcome, we must offer our influence in exchange for what we want. This is what the Banks do and at present “The Banks tell the politicians to Jump and only response is How High”: The Banks buy these outcomes with donations…..
We need to achieve the same outcome.
We cannot offer the Millions in donations; however, we may be able to offer either party Government.
Our clients are voters, and we have the capacity to influence them to vote one way or the other, by using our knowledge of what influences them.
Bennelong and Kooyong are good examples of our influence at work.
I urge every adviser to join the AIOFP and get behind our efforts to make change happen.
Your future depends on you action right now. Do it today Join the AIOFP and send a message to Canberra.
Our next on shore Conference will be held in Canberra later this year and you will have the opportunity to put your concerns directly to our politicians of both parties.
I reported Dixon to ASIC at least 2 years before they did anything. Now I am paying for their incompetence. Bloody hell.
Thankfully, we’re not contributing towards their Dixon incompetence, because they’re funding that (from all taxpayers), however if you consider the size of the issue…
“CSLR has provided a second levy period estimate of $24.1 million”… of this, the adviser cohort is funding $18.5M, so…
If the next “black swan” event is the same size as Dixon ($241m), then each advise will have to fund $15,855, based on a cohort of 15200 advisers. Plus administrative costs…
I expect that if the Financial Advice sector is not dead at that stage, it certainly will be afterwards.
Does this mean that each adviser in Australia will be required to fork out funds to fund approximately $21mil over these two trenches I.e. estimated amount between $1200 and $1000 based on the remaining adviser numbers? Help anyone
I think the answer is yes… except the cost per adviser will also include some administrative amount due to the fact they need to cover the costs of employing thousands of staff and send out invoices, so I expect probably another $1,000pa on top of that!!!
nothing to say……
Is the way to facilitate affordable financial advice to all Australians?
What this achieves is to further increase the cost of financial advice, so only the wealthy can access financial advice.
Most of the losses are caused by product providers, however financial advisers seem to be targeted under this scheme. CSLR should be broken down into subsectors and the levy should be limited to our sector on its own. Product providers should fund their own CSLR scheme as they cause the most claims that are unfunded.
Financial advisers are being expected to pay compensation for the errors and misdeeds of Big Business. It is shameful that the Liberal Party, led by Josh Frydenberg and Jane Hume, introduced this scheme. And shameful that the ALP , led by Stephen Jones, have exempted product providers for having to fund it.
Can somebody tell me what the point of PI insurance is? Are we now assuming insurers cannot be relied upon to honour their policies? Why will we now, in effect, be paying two insruance premiums to cover the same thing?
If you’re an adviser, none whatsoever…
PI cover, despite the cost being passed on to advisers in one way or another, covers the AFSL holder. In the event of a claim against an adviser (for whatever reason), the AFSL provider can choose to claim against it’s PI cover, or not to claim against it’s PI cover.
They may decide not to claim due to either… the smaller cost of the claim or the expected increase in PI premium upon renewal the following year, or, in fact any other reason they can think of…
In such a situation, it will be the adviser who has to pay, because the AFSL holder is in a position to enforce such a situation.
Ergo… “compulsory” PI cover is not likely to be of value.