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Industry
4 MIN READ

Over and out

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alex.burke
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11 days ago

Last week, the CSLR released an initial levy estimate of $77.9 million for the 2026 financial year. 

The advice industry’s share of the bill amounts to around $70 million – which is, for those keeping score, well over the $20 million subsector cap enshrined in the Financial Services Compensation Scheme of Last Resort Levy Act 2023. To make up the difference, the CSLR will request the imposition of a special levy “early in FY26”. 

If you’re wondering how the adviser levy ceiling was obliterated less than a year after the CSLR commenced operations, principal actuary Finity Consulting has an answer.

In its initial estimate report, Finity lays the blame on two failed companies: Dixon Advisory, whose business model pivoted on rolling client super into SMSFs that invested in related-party products, and United Global Capital (UGC), whose business model pivoted on rolling client super into SMSFs that invested in related-party products.

The similarities might be hard to spot at first glance, but it turns out Dixon and UGC represent 92% of the claims the CSLR is expected to pay through 2025/26. And while we can assume Dixon’s collapse (and the cost thereof) was factored into the CSLR’s funding model when it was being designed, UGC wasn’t – primarily because, as Finity’s report notes, it had yet to fail.

Still, though: blowing past its allocated budget isn’t the most prodigious start for a scheme that’s barely been around for two iPhone generations. Nor is it the most flattering coda to Stephen Jones’s tenure as the Assistant Treasurer who campaigned on fixing the “hot mess” that is financial advice. 

This might be why, just a day after declaring his retirement from politics, Jones announced that Treasury will undertake a "comprehensive review" of the CSLR. The review will focus on "taking care of consumers," he explained, but it will also consider the scheme’s impact on the Government’s broader objective: providing “access to affordable high quality financial advice.” 

Jones added that while the CSLR has enjoyed “broad support” from the industry – a claim I’m struggling to verify, but I am but one mote of dust in an ever-expanding cosmos – the review will ensure that the scheme is “meeting its objective in a way that is sustainable for both companies and consumers.”

Better late than never, right? And who could have possibly predicted that the CSLR’s costs would blow out so spectacularly? 

Well, there were signs. 

St John’s tort 

For example, there was the Senate hearing in early 2022 where advice industry representatives questioned the sustainability of the CSLR's funding model.

This followed a joint statement, published in October 2021, from 15 organisations – including advice and accounting associations, consumer groups and community legal centres – which argued the scope of the scheme would imperil its ability to "operate equally and fairly." 

Before that, there was the pre-Budget submission from the AFA (sort of the Joy Division to to the FAAA's New Order) which suggested the CSLR’s design would drive up costs for advice businesses – costs that would “inevitably be borne in large part by the consumers of financial advice who, more than ever1, need high-quality reasonably-priced advice.” 

And before that, there was another joint statement – this time from eight advice, accounting and stockbroking associations – which described the CSLR’s funding model as a “significant departure from the Royal Commission’s intent” that would “add significant cost and complexity.”

And before that, FAAA predecessor organisation, the FPA, prophesied that the scheme’s exclusion of managed investment schemes "would make [it] vulnerable to funding shortfalls."

And before that, AFCA – as in the complaints body that passes on unpaid determinations to the CSLR – said in a submission that the scheme should encompass all products and services "through which a consumer had suffered losses," adding that managed investment schemes represented "a particular risk when it [comes] to misconduct." 

And way before any of that, back in 2012 – when the industry was nearly twice the size it is today – Richard St John, writing in his final report on the collapse of Trio Capital, recommended against establishing a CSLR. He said it would be “inappropriate to require more responsible and financially secure licensees to underwrite the ability of other licensees to meet claims against them for compensation.” 

Should such a scheme be established, though, St John said it would need to account for circumstances where “the insolvency of a licensee or licensees leads to compensation liabilities that exceed the capacity of the sector in question” – perhaps by drawing on levies from another sector where a “linkage can be established.” 

“For example,” he said, “where compensable losses attributable to the financial advice sector exceeded the capacity of the sector to pay, the scheme might be empowered to seek a co-contribution from the funds management sector on the basis of that sector’s reliance on financial advisers to distribute their products.” 

Ah, well: hindsight is 20/20. 

You will find me if you want me in the garden (unless it’s pouring down with rain)

Now, it would be unfair to blame Stephen Jones for all of this, especially as he’s heading out the door. He may have been Assistant Treasurer when the CSLR legislated and established, but he was incredibly busy rolling out “the most significant reform to financial advice laws in over a decade” – one teaser post at a time. 

And in his defence, it was his predecessor, Jane Hume, who openly mocked the idea of expanding the CSLR to include investment products. She said doing so would see “investors’ returns clipped to underwrite people who punt their savings on emu farms or tulips or other too-good-to-be-true high-return, high-risk investments.” 

At a certain point, though, you have to wonder where the buck stops. If Jones can’t fix the “hot mess,” who will? 

In my experience, the only thing worse than a hot mess is a cold one. Once the temperature drops, that’s when things start to congeal. 

1: This phrase is how you know it was written after COVID.

Updated 11 days ago
Version 7.0
  • A great article Alex and I tend to think most of the industry would agree with your sentiments! Hard to understand how we got here! 

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