FAAA calls for action on CSLR as costs spiral out of control

Financial Advice Association Australia (FAAA) chief executive officer, Sarah Abood, has called on Financial Services Minister Stephen Jones to take action on the drastically escalating costs of the Compensation Scheme of Last Resort (CSLR).

According to the FAAA, an update from the Australian Financial Complaints Authority (AFCA) earlier this week that noted a further 544 complaints about Dixon Advisory have been made since 15 February 2024, means the financial advice profession will have to pay an estimated additional cost of approximately $65 million.

This equates to a direct cost to every financial adviser of $4,165 on top of what has already been disclosed by the CSLR, which the FAAA said is a “huge impost for the financial advice profession that is already dealing with declining numbers and spiralling costs”.

“The Dixon Advisory AFCA membership has already been extended twice and the entity was put into administration over two years ago now. We urgently call upon the AFCA board to clarify the process and timing for that membership to end,” Abood said.

“We also urgently, again, call upon the government to review the funding model of the CSLR. Not only is it completely unfair, but it is also economically impossible for the small business financial advice sector to underwrite the failures of large listed firms.

“Why should financial advisers pay for the failure of Dixon Advisory, a subsidiary of the large listed group Evans and Partners, which earned over $174 million in revenue last financial year?”

She added that the matter represents an “existential threat to our profession”.

“The minister has not yet responded to our many requests for engagement on this matter, and we call upon him again to work with us urgently to find a sustainable solution to this crisis,” Abood said.

This is the latest in a string of strong FAAA statements on the CSLR, including chair David Sharpe saying the scheme could “devastate our profession” at a roadshow in Sydney last week.

“We’re advocating for it to not be retrospective. We’re advocating for a large corporate not to simply be able to walk away from a subsidiary, so individual advisers like you and I are footing the bill,” Sharpe said.

“It can’t be the compensation scheme of first resort, purely because it’s too hard to chase the money. I’m sick of being an ATM – an adviser teller machine – and every time there’s a bill, we’re the ones who have to fork it out.”