Eight of Australia’s largest financial advice industry associations have united to oppose the design of the compensation scheme of last resort (CSLR).
The Government released for consultation draft legislation for the CSLR and Financial Accountability Regime in July.
Chartered Accountants Australia and New Zealand (Chartered Accountants ANZ), CPA Australia, Financial Planning Association of Australia (FPA), Institute of Public Accountants (IPA), SMSF Association (SMSFA), Association of Financial Advisers (AFA), Stockbrokers and Financial Advisers Association (SAFAA) and the Boutique Financial Planning Principals Association say the proposed scheme would make financial advice less affordable and accessible.
The Royal Commission recommended the establishment of a CSLR to compensate consumers once all other avenues had been exhausted.
All eight associations said they supported CSLR, but did not support the way the scheme was structured to include Australian Financial Complaints Authority’s (AFCA) outstanding expenses in addition to failing to address the causes of unpaid consumer compensation.
In a joint statement, the associations said they were concerned the scheme may not be used purely as a last resort, which would be a major and unwarranted departure from the Royal Commission’s intent.
“The Federal Government made a commitment to reducing red tape to cut the cost of doing business,” the statement said.
“The proposed scheme will add significant cost and complexity, which is at odds with this commitment.
“The draft legislation establishes a CSLR operator as a subsidiary of AFCA. This adds unnecessary red tape by requiring the Australian Securities and Investments Commission (ASIC) to administer invoices and payments and significantly increases the Governments administration costs of the financial advice sector with little benefit to consumers.”
ASIC fees for financial advisers had increased by more than 230% over the past three years, which further burdened advisers.
“Most financial advisers are sole traders or small businesses who cannot afford the rising costs associated with increased regulation,” the associations said.
“Others are authorised representatives of groups who participate in other compensation schemes, which adds duplication.
“COVID-19 impacts and Australia’s ageing population mean the nation’s advice needs are growing, yet escalating regulatory costs have already caused a mass exodus of advisers from the industry.
“The total number of financial advisers has fallen below 20,000 and will not be enough to meet this increasing demand. We anticipate the proposed scheme will further reduce adviser numbers.
“Responsibility for consumer losses and complaints should be shared evenly across the sector. However, the proposed scheme does not apply to some industry participants, such as product manufacturers.”