CSLR commences, CEO says cost charged to adviser can’t be refuted

The scheme, first proposed by the 2017 Ramsay review and backed by the royal commission, is expected to encourage industry to support strong standards, enhancing trust and confidence in the financial services sector. But for financial advisers, who are being asked to fund $18.5 million for the first full year period, it’s a burden deemed unjust.

Speaking to media ahead of the scheme’s launch, David Berry, the inaugural chief executive officer of the Compensation Scheme of Last Resort (CSLR), told ifa that he appreciates that any additional cost to small businesses is not something “people would welcome”.

He pointed out that the CSLR is an industry-funded scheme governed by legislation which ensures that those firms subject to the CSLR levy pay in proportion to their size, relative to the sub-sector in which they operate.

“I appreciate their position [that of advisers], we’re acting in accordance with legislation. We have worked through what we see as the likely claims, which we’ll need to pay and as such that’s the number. We can’t really refute that number at the moment, it’s just more the work that’s gone into determining that’s how much we expect to pay in the first and second levy period,” said Berry.

Last month, the CSLR revealed that the cost of the first levy period, which will be funded by the government, is $4.8 million, while the second levy is estimated at $24.1 million with much of the cost charged to advisers.

Commenting on the hefty slice charged to advisers, Berry said: “I would highlight though that the majority of the Dixon cost is being borne by the 10 largest lenders and general insurers. They’re fronting up $241 million to support the compensation.”

The Financial Advice Association Australia (FAAA) is asking for urgent government intervention on the CSLR, citing the unexpected scale of the levy and its focus on addressing legacy issues.

Joining the ifa Show podcast recently, the FAAA’s general manager of policy advocacy and standards, Phil Anderson, said the FAAA wants to see the government pick up the entirety of the legacy Dixon Advisory matters.

“The business went into administration in January of 2022. The legislation for the CSLR was not passed until June of 2023, so nearly a year and a half later. It received royal assent in early July of 2023. We do not believe that this legislation should be applied retrospectively, and if we are required to pay for complaints that were submitted after the 7 September 2022, but before the legislation was passed, we think that’s wrong,” Anderson said.

“We think that there should not be a retrospective application of the law here. The vast bulk of those post-7 September 2022 Dixon complaints were received in September and into October of 2022. If you take out all of the Dixon Advisory matters, that would be a good outcome. That would significantly reduce the cost. But we would certainly argue that we should not be paying for Dixon Advisory matters that were received prior to royal assent in July of 2023.”

Moreover, Anderson pointed out the levy will only get higher in financial year 2025–26. Namely, according to estimates drawn up by the Actuaries Institute, the Australian Financial Complaints Authority (AFCA) will need until the March quarter of 2026 to complete the processing of legacy Dixon Advisory matters.

“We are talking about the prospect of an even larger number in the financial year 2026,” Anderson said.

“So, this is an issue that we need to argue strongly for, not only this year or the year that’s coming up, but the following year. So, it’s not just about $1,200. It’s probably significantly more in the 2026 year that we certainly want to see the government come to the party on.”

To hear more from Phil Anderson, click here.