Financial Advisers slam Labor over failure to undertake proper consultation over CSLR scheme

Financial advisers say the Albanese government did not undertake the proper steps before introducing a scheme which has left a $130m-plus bill to many small business owners.

FAAA chief executive Sarah Abood says Labor did not conduct a proper impact analysis before it introduced the CSLR scheme in 2024.

The Financial Advice Association Australia (FAAA) has slammed the Albanese government for having not undertaken enough consultation over its Compensation Scheme of Last Resort (CSLR), which slugged financial advisers more than $130m.

The scheme, launched last year, allows victims of poor advice and financial misconduct who have been unable to access redress through other avenues due to insolvency claim up to $150,000 in compensation.

A freedom of information request by the industry body showed an impact analysis of the scheme — a process which requires consideration of options, assessment of the benefits and costs, and consultation with stakeholders — was likely not undertaken.

FAAA chief executive Sarah Abood said the apparent lack of any impact analysis conducted during the scheme’s development has led to substantial financial strains on the profession, which should have been foreseen and avoided if a proper process was undertaken.

“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,” Ms Abood 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 the equivalent of an Impact Analysis. We believe that this decision is deeply flawed and inappropriate in the circumstances.”

The heavily redacted documents were provided to the FAAA more than four months despite the legislated time frame to process a response being just 30 days.

It comes after the FAAA secured in September an inquiry into the collapse of Dixon Advisory, owned by E&P Financial, which has left the wider financial planning profession to cover as much as $135m of the compensation bill for the firm’s misconduct.

The FAAA has now urged Labor to acknowledge the scale of the exposure the financial advice profession faces and undertake an urgently needed review of the CSLR legislation, to ensure the CSLR is fairly and sustainably funded.

Last year the FAAA met with Financial Services Minister Stephen Jones as well as Treasury to continue work on fixing the unintended consequences of the CSLR and has played a key role in securing a public inquiry into the failings of the scheme.

Ms Abood said the Royal Commission had a different purpose and was finalised over four years before the extent Dixon Advisory’s failures were known and prior to the legislation for the CSLR was considered by parliament.

“There appears to have been no attempt to calculate the likely costs to advisers who are funding the scheme, or to assess whether these costs are affordable or sustainable, and the likely impact on the overall cost of advice to consumers,” she said.

“This is deeply disappointing. 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.”

The CSLR fills a gap in consumer protections by helping those unable to get compensation from insolvent firms. It covers matters related to investment advice, trading stocks or bonds, borrowing money from a company or getting help to borrow money, including through a mortgage broker.

The FAAA has taken issue with an unfair bill financial advisers, of which it says many are small business owners, have been left to cover by the collapse of Dixon Advisory in 2022.

The Dixon Advisory compensation bill was to be divided up between the big banks, advisers and the federal government.

The 10 largest financial institutions, excluding super funds, are on the hook for the 1600-odd Dixon claims received before September 7, 2022.

The government was set to pay for any Dixon Advisory claims finalised between the start of April and June 30th this year, but none were completed during this time — so no payment was required.

The advice industry, as the last stop, is footing the bill for the remaining 1135 cases, for an estimated cost of $135m.

Originally published as Financial Advisers slam Labor over failure to undertake proper consultation over CSLR scheme