The federal opposition has pledged to bring down the costs of the Compensation Scheme of Last Resort days after the Financial Advice Association Australia raised concerns over lack of transparency regarding whether the full impact of the scheme was assessed.
Earlier this week, the FAAA revealed it failed to receive any concrete indication during a Freedom of Information request about whether a legislative impact analysis was taken over the implementation of the CSLR.
“The Coalition will act quickly to fix the CSLR and get costs down for advisers,” shadow Minister for Financial Services Luke Howarth tells Professional Planner.
“The CSLR needs to be a genuine ‘last resort’, not something that foots the bill when a parent company wants to shed its liabilities. This goes beyond the Dixon backlog and we need to make sure this situation can’t happen again.”
The backlog of Dixon cases is expected to result in hundreds of millions of dollars of compensation and CSLR chief executive David Berry had sounded the alarm to Minister for Financial Services Stephen Jones that the FY26 levy would see the cost blown out.
The impact of Dixon claims has led to a Senate inquiry being launched by One Nation Senator Pauline Hanson.
Although the Coalition stated its support for the inquiry, which will be deputy chaired by Andrew Bragg, Howarth has called for urgent action to make the scheme sustainable and reduce its costs in a fair way.
“We need to get these costs down quickly and reform can’t wait for the outcomes of the ongoing inquiry,” Howarth says.
“The government should not be using the inquiry as cover to continue its inaction on its massive CSLR cost blowouts.”
Howarth will be joined by Minister for Financial Services Stephen Jones at the Professional Planner Advice Policy Summit on 10-11 February in Canberra to discuss advice reforms and the impact these policies will have on advice practices.
When pressed in the past about rising cost of the ASIC levy, as well as the implementation of the CSLR, Jones had defended lack of policy change in those areas promising his signature Delivering Better Financial Outcomes reforms would lower the cost of advice.
Lacking information
While the FAAA was unable to ascertain whether an impact analysis was done for the CSLR legislation, the association predicted it might have been unnecessary due to it being a recommendation from the Hayne royal commission.
The scheme was also a recommendation of the 2017 Ramsay Review and ASIC Commissioner Alan Kirkland – who was part of the review in his capacity as CEO of consumer advocacy group Choice – conceded at FAAA National Congress last November there wasn’t a clear view over how it would ultimately operate.
The original CSLR legislation was introduced by the previous Coalition government but did not pass before the 2022 election, which meant the new Labor government led by Prime Minister Anthony Albanese passed a new bill in mid-2023.
“The Albanese Government’s failure to conduct proper regulatory impact analysis is not surprising and financial advisers across the country are now wearing the consequences,” Howarth says.
“This poor process pales in comparison to the government’s total inaction since clear problems with the design of the CSLR were exposed at least a year ago.”
The Principals’ Community organised a campaign for advisers and licensees to make levy payments “under protest” and have since written a submission to the inquiry.
Kon Costas, the managing director of the community, says he’s less worried about any potential outcomes of whether an impact analysis was done and would rather see tangible changes to the scheme instead.
“We can’t keep going back and pointing fingers at things…that won’t be reserved,” Costas says. “Let’s go forward, work together and find solutions.”
Costas points to two key solutions which are firstly that the government should cover the full remediation for Dixon and also to work with policymakers to make sure the scheme is structured in a way that mitigates the impact of other black swan events.
“CSLR is here, it’s not going to change,” Costas says. “What we need to do is find solutions that are going to help financial planning businesses.”
Butting in
Howarth also took aim at the controversial ‘but for’ provision for deciding remediation in AFCA determinations and the shadow minister says he has been informed by the CSLR’s Berry that ‘but for’ complaints make up 80 per cent of claims.
Successful claimants in an AFCA determination may receive compensation in a case where it was proven they received poor advice even if they didn’t have a capital loss but would’ve been in a better position otherwise.
The mechanism, which AFCA has defended and explained it has legal precedent, has still bothered the advice profession who feel they are compensating people who did not have a capital loss.
“This is the bizarre reality of what the CSLR is paying and is why the costs are blowing out,” Howarth says.
“AFCA’s approach to making these compensation decisions is a major problem for the scheme and I met with AFCA CEO, David Locke, recently to directly raise my concerns about this issue. The government should intervene to limit these claims when it is the CSLR footing the bill.”
Howarth also criticised the administration costs of the CSLR which he says have “blown out” which cover around a third of the annual levy.
“This is 70 per cent higher than what Treasury estimated when designing the scheme and these costs need to be cut,” Howarth says.
“Advisers have enough of their own admin to do and pay for, let alone paying for the CSLR’s excessive admin costs too.”
While Howarth says there are “good intentions” and supports a “sustainable scheme with a reasonable cost” he disputes this is what is currently in place.
“It is out of control and the solution can’t be Labor’s plan of just issuing more levies,” Howarth says.