The Financial Advice Association Australia (FAAA) has obtained Compensation Scheme of Last Resort (CSLR) documents under the Freedom of Information (FOI) process.
According to the industry body, the CSLR-related documents show the government “may have failed in an important aspect of its obligations” in failing to undertake an impact analysis.
Namely, the FAAA stated that an impact analysis into the CSLR, which requires consideration of the options, assessment of the benefits and costs, and consultation with stakeholders, was “likely not undertaken”.
While the legislated time frame for an FOI request is 30 days, the FAAA noted that the heavily redacted documents were provided over four months after being requested.
Sarah Abood, chief executive of the FAAA, argued that the apparent lack of any impact analysis conducted during the CSLR’s development has created substantial financial consequences for the advice industry, which could have potentially been avoided.
She said: “There appears to have been no timely analysis done on the costs and benefits of the CSLR. Statements were made that the Hayne royal commission process was considered to be the equivalent of an impact analysis.
“We believe that this decision is deeply flawed and inappropriate in the circumstances. The royal commission had a different purpose and was finalised over four years beforehand: well before the extent of the failings at Dixon Advisory were known and well before the legislation for the CSLR was considered by Parliament.”
Abood claimed that there appears to have been zero attempt to calculate the likely costs to advisers who are funding the scheme or to assess whether the overall costs are sustainable.
“This is deeply disappointing,” the CEO added. “We are calling for the government to acknowledge the scale of the exposure the financial advice profession faces and to undertake an urgently needed review of the CSLR legislation, to ensure that the CSLR is fairly and sustainably funded.
“If the government is serious about ensuring the fairness and sustainability of the CSLR, it must act now to rectify the many flaws that have emerged since the scheme was established.”
Dixon Advisory was the subject of an inquiry by the Senate economics references committee into the collapse of wealth management companies, how they can be avoided, and the role of ASIC in preventing them.
Since it collapsed in 2022, there have been over 2,700 complaints received from consumers by the Australian Financial Complaints Authority (AFCA). Given Dixon is in voluntary administration, the majority of these complaints have to be funded by the CSLR which came into force in April 2024.
This has led the CSLR levy for financial advisers to reach $18.5 million, and it is expected to exceed the sector cap of $20 million in the next levy period.
As a result, commentators such as the FAAA’s general manager of policy, advocacy and standards, Phil Anderson, have called for the Dixon Advisory complaints to be funded by a wider range of companies.
