Associations coordinate calls to add MISs to CSLR

The Financial Advice Association Australia, SMSF Association and Stockbrokers and Investment Advisers Association have called for managed investment schemes (MISs) to be included in the Compensation Scheme of Last Resort as a primary subsector.

One of three consultations launched simultaneously by Treasury in April, the consultation on the CSLR suggested excluding “but for” complaints from the scheme, levying MISs and SMSFs, and giving more power to the scheme to recover funds.

The CSLR continues to balloon with another special levy due in FY27 as advice remediation blows past the $20 million annual subsector cap.

The FY26 special levy saw an additional $47 million levied against financial adviser and other sectors including APRA-regulated funds.

The consultations were launched in response to the $1 billion Shield and First Guardian collapse, which the CSLR estimates that Shield and First Guardian could add another $125 million in FY27, placing the scheme over its total annual cap of $250 million.

In addition to its own subsector, FAAA chief executive Sarah Abood said clients should be able to make complaints against super funds and MISs to AFCA, and reaffirmed calls for AFCA to be able to apportion loss to other parties and not just financial advisers.

SIAA recommended that the scheme include managed investment schemes as a primary sub-sector and that a broad-based levy be applied consistently across all managed investment schemes to maximise simplicity and administrative efficiency, rather than only levying the sector through special levies.

“We note with disappointment that the government is not considering bringing managed investment schemes into scope of the CSLR annual levy… but instead is considering how best to apply a special levy to the managed investment scheme sector where a special levy is enlivened,” SIAA chief executive Maria Lykouras said. 

The consultation canvassed adding SMSFs into the CSLR levy and the SMSF Association argued it was unfair for SMSFs to be levied, but not MISs despite the material role of the latter in large-scale losses going to the scheme.

The Financial Services Council, SMSF Association and SIAA all recommended the government pursue changing the CSLR to only remediate capital loss and not include missed investment gains – colloquially known as “but for” losses – from AFCA determinations that calculate total loss based on the returns investors missed out on because they were switched.

Former Minister for Financial Services Stephen Jones called for excluding “but for” claims from the scheme, a view endorsed by his successor Daniel Mulino and the head of the CSLR, CEO David Berry.

The FSC called for the “opt in” option that would see SMSF trustees choose to join the CSLR and pay levies, reflecting the self-directed nature of the SMSF structure and the principle that trustees actively determine their level of engagement with the regulated system.

However, the SMSF Association rejected any proposal to levy SMSF members or to exclude SMSF investors from CSLR eligibility, arguing trustees are often retail consumers and victims of misconduct who suffered loss because of poor advice or product failure.

“This proposal is not only nonsensical, but also morally wrong, and in any other environment would likely be labelled victim blaming,” SMSF Association CEO Peter Burgess said.

“They should not be forced to pay an additional levy to preserve access to a statutory compensation scheme. Nor should they be excluded from protection because they chose to hold their retirement savings through an SMSF.”

The trustee standards consultation suggested a ban on advice fee deductions for super switching and the introduction of a waiting period for super switches and a requirement for  trustees to remediate investors for certain losses.

As was the case with the FAAA, the FSC, SMSF Association and SIAA all knocked back calls to ban advice fee deductions from super balances when switching funds.

“This runs counter to the government’s expressed intention of increasing advice accessibility and affordability and encouraging Australians to think about their superannuation,” SIAA said.

The FSC argued against waiting periods making the point that the old fund would take advantage of that to retain a member who already made a conscious decision to switch.

“This would be particularly true if the incumbent fund were to be able to use that time to effectively hawk their own products in an effort to get them to stay, the risk of which increases with the proposed mandated trustee communication to individuals who indicate they want to switch fund,” the FSC submission on trustee standards said.

The third consultation covered lead generators and aimed to protect consumers from high-pressure sales and cold calling by requiring lead generators to be licensed, strengthening the rules on unsolicited selling, addressing conflicted payment structures and disrupting harmful or misleading advertising.

The Financial Services Council called for enhanced accountability of licensees for the conduct of lead generators, rather than an outright ban on unlicensed communication.

The FSC and SMSF Association both supported requiring superannuation advertisements to publish AFSL numbers and for ASIC’s stop order powers to be expanded to cover ads.

SIAA didn’t support either proposal and argued ASIC already had intervention powers.