The FAAA Congress has come around again – only this year, things seem different.
Maybe it’s the heat or it’s just the end of the year, but something’s missing. Advisers moved through the Perth Convention and Exhibition Centre, refueling on fresh juice and whatever merch would fit in their branded tote bags. There was much to discuss, but all conversations inevitably veered towards one topic: the Compensation Scheme of Last Resort.
Enter Phil Anderson. While priming the audience for Assistant Treasurer Daniel Mulino’s appearance at Congress, the FAAA’s policy lead observed that “the problem with having a policy discussion after the Minister speaks is that there’s a real fear you may have to adjust your talking points.”
“Fortunately,” he added, “I am not presented with that burden today.”
Anderson wasn’t wrong there. In fact, the real fear – the one that persisted after Mulino left – wasn’t that policy would change. Instead, it was that the uncertainty around the CSLR would continue.
There’s very little about the CSLR’s implementation that evokes certainty. Currently, the scheme is contending with the sheer number of claimants, pending part 23 SIS Act applications and, of course, upcoming litigation. Further, it is yet to be determined how these factors could further inflate the roughly $1 billion loss attributed to Shield and First Guardian.
When contemplating the current schedule of compensation payments, it seems that the only certainty is that estimates will change. AFCA’s reporting on paid compensation claims offers a window into just how long Dixon will take to be fully realised; Dixon went under in 2022, but Dixon-related complaints will be handled well into the 2027 (or even 2028) financial year.
The legislative framework in which the CSLR operates provides considerable flexibility with regards to the application of special levies. Which is why the advice industry’s $20 million subsector cap has so far failed to operate as a cap in the traditional sense.
Currently, the minister may via legislative instrument make a determination on the following:
- Make compensation payments in specific instalments
- Apply a special levy where the cap is exceeded in one sub sector
- Apply a special levy where the cap is exceeded across multiple sub sectors
The only overarching restriction here is the $250 million cap on the scheme. In light of the above, it’s hard to see how the advice sector won’t be paying over the $20 million cap for the foreseeable.
Putting claim and loss estimates aside, the principal uncertainty is how the compensation will be apportioned to the financial advice profession itself. Adviser numbers are still falling: from 2019 to 2025, we’ve gone from 28,000 on the FAR to fewer than 16,000.
Over time, the CSLR’s costs – and ASIC’s, for that matter – have been spread across a shrinking cohort. One adviser at Congress remarked to me that if the CSLR cost-per-adviser rose from 8,466 to 12,000, they’d leave the profession. In the current climate, that number seems unavoidable.
The reality is Australians have never needed financial advice more than they do now, and there are fewer advisers around to give it to them. Compensation schemes are an essential ingredient in managing professional misconduct – but if their primary effect is to reduce accessibility of a service so many people require, some would rightfully question their effectiveness.
Victims of financial misconduct should be afforded full compensation, of course. But policymakers and regulators need to ensure that CSLR policy apportions blame to the sectors, subsectors and individuals actually causing harm.
Advisely Team