The bleak future of the CSLR

Phil 

Your life in public affairs have taught you realism & pragmatism. I say touché !

I will find another windmill to tilt at...there are many. We could, perhaps, start another discussion about the life insurance commission disclosure regime? 🤣 

Thank you for engaging.

Hi Daniel, before I file this under either C or G, I might make some short further comments. We are now stuck with a scheme of some form. The Parliament will not agree to remove what is seen as a consumer protection. The ultimate reality is that this is now beyond debate and the focus is about the funding.

In 2019, the Government of the time paid out $30m for all unpaid determinations of FOS for the last 10 years. That set an expectation of a bill of around $3m a year. Of course we feared a black swan event, and we were not to know that we would have five of them in the first year of the scheme. The initial plan was to have a sector cap of $10m. We could probably begrudgingly live with that, however adviser numbers have fallen greatly and the cost has ballooned above any realistic expectation. We might well argue that we should not have a CSLR, however what we are working towards is one that is sustainable. 

Phil  - thank you for responding. Forum postings are not the best place to demonstrate nuance - so I appreciate you giving me the benefit of the doubt in your response to my comments.

The one comment I can make briefly and succinctly - is I wonder if we disagree about the CSLR? My view is that the underlying premise behind the entire scheme is wrong. My belief is the scheme shouldn't exist not that its funding model is wrong. 

I will rely on an analogy - would our friends at TAL take on a(n unlimited) risk without first underwriting the risk? Or would my PI insurer? 

What the CSLR does is to effectively make the financial planner act as "a Name" at Lloyds - but without an Underwriter to help them assess the risk, or the ability to refuse an acceptable risk.  The CLSR acts to accept risks in the same way an insurance company does or a friendly society used to - but if the CLSR was an insurance company then the risk is transferred to an incorporated entity where the shareholders accept the potential liabilities or if the CSLR was an old-fashioned friendly society - like co-operative the risk accepted is limited to the extent of the pool of capital available - but it's not. It combines the worse features of both structures. So, in effect, the CSLR exposes "the Names" behind the scheme (the decent financial planner) to the moral hazard of unassessed insureds.

BTW, on a human level, of course, I care about the people facing ruin. It is simply I am sure if you ask The Government (any of them!) financial planners were responsible for the Punic Wars, the loss of the British Empire, and for any & all the Collingwood Grand Final victories.  I know we agree that "we" need to stop the poor treatment of the financial planner by Governments that use them to fund what they feel are "community obligations".  

TL/DR ? The CSLR is fundamentally flawed because of the existence of the unavoidable moral hazard placed on the scheme because it covers everybody without assessment. 

Phil - you don't need to respond. You can file this conversation under either C for crank or G for grumpy. 

Phil

I am a terrible driver...I speed down my suburban street; I run every amber light; my car is barely road worthy; and I care not a whit for other road users. 

My wife and my children conversely are all excellent drivers - they never speed down any street; never cross any amber light; and they care deeply for other road users.

If in my haste to get to the pub (my other failing) I had run over one of the effected Dixon clients with my car outside their house...would Society expect that my wife, my family, or the neighbours in my street contribute to the compensation due to the Dixon client's family?  Or would they recognise my family's blemish free driving record? And pity them for being related to a scrouge of the roads?

Would Society expect that my local council place a levy on the council rates applicable to properties in my suburb, or my street, to compensate the client's family? Or would Society expect that I, and I alone, be punished? 

If I had fled the scene of the accident would that change?  Would Society's view change? Would they say to my family "You share his surname - you can pay his dues and spend his time in prison?" 

I think not.

To extend the metaphor to breaking point, therefore I am not sure why "the neighbours" are being asked to contribute (as the primary and only source of funds) for someone else metaphorically "running over" that client's wealth.

The system, as it is, represents capitalism for any profits and socialism for any losses. The CLSR, as it stands, promotes moral hazard. Dixon Advisory could (and did) recommend packaged elephant poo as the elixir for financial health knowing that if didn't work everyone else would pay.

And we are...

The recent action by ASIC against Equity Trustees and media suggestions of negotiations with Macquarie around client remediation paint a picture that others will be forced to contribute to the cost of Shield and First Guardian. That is a good thing, however we need to know how these collapses were even possible and what needs to change to avoid the risk of it happening in the future.