CSLR shouldn’t ‘burden’ advisers with retrospective costs: IFPA

The Institute of Financial Professionals Australia (IFPA) shared its concern about the retrospective aspect of the CSLR levy and the impact the additional cost will have on advisers and clients.

The most recent CSLR levy estimate will leave financial advisers with an $18.5 million bill, equating to approximately $1,200 per adviser. Payment is expected in September 2024 and will cover the 2025 financial year.

The levy will fund claims from eligible consumers who have been the victims of financial misconduct and is estimated based on the date of the payment of the claim rather than date the claim is made, leaving advisers left paying for prior misconduct.

Natasha Panagis, head of superannuation and financial services at IFPA, said advisers should not be expected to fund compensation claims made prior to the establishment of the CSLR.

This is particularly problematic, according to Panagis, due to the inclusion of Dixon Advisory-related claims in the levy costs, even though the company has been in administration for more than two years and predates the establishment of the CSLR.

“We urge the government to remove the retrospective aspect of the CSLR levy by basing the levy on the date the claim is made rather than the date the claim was finalised,” she said.

“If the government wants advisers to remain in business and attract new entrants, it should not burden existing advisers with more costs and instead fund all legacy complaints that occurred before the CSLR scheme was set up.”

Panagis said the additional costs placed on advisers for previous misconduct by other industry members and organisations hinders the goals of the government to help bring down the cost of advice.

“The retrospective nature of the CSLR levy runs counter to the government’s Quality of Advice Review objective, which is to make advice more accessible and affordable for all Australians,” she said.

Noting the rise in the ASIC levy as well this year, Panagis pointed out that the added expenses placed on advisers will ultimately be passed on to clients, making advice more expensive and less accessible while also reducing the appeal of the profession to potential entrants in the future.

“At a time when there is a shrinking adviser pool coupled with the higher ASIC supervisory levy and other rising operating costs, advisers will have no choice but to pass this extra cost onto their clients,” she said.

“This extra cost is yet another hurdle that advisers need to overcome.”

Last week, Financial Advice Association Australia (FAAA) chief executive Sarah Abood expressed “deep concern and disappointment” regarding the added cost to advisers by the CSLR levy.

According to Abood, the retrospective nature of the scheme, leaving advisers to cover the cost of the Dixon Advisory “black swan” event and the shortened period to be covered by the government is cause for great concern.

“It is extremely concerning that because of these issues, the high quality and compliant financial advisers of today are being asked to fund compensation for the clients of Dixon’s, a firm which has been in administration now since January 2022 – over two years ago and long predating the establishment of the scheme,” Abood said.

There are currently almost 2,000 Dixon complaints lodged with the Australian Financial Complaints Authority (AFCA), the cost of which are expected to fall on the shoulders of financial advisers under the CSLR levy. The FAAA said the complaints should be classified as “legacy complaints'” and funded by the government.

“We are urgently calling on the government to remove retrospectivity by covering historical claims based on the date the claim is made, not the date the claim is finalised.”