Speaking on an ifa webcast breaking down the Compensation Scheme of Last Resort (CSLR), the scheme’s CEO, David Berry, argued that the existence of the CSLR is a necessary step to ensure there is trust in the financial system and complaining that it has been established is counterproductive.
“I think you can have lots of discussion as to, well, ‘Woe is me, this is unfair’. It’s here, it’s been passed by Parliament, by both sides of government. The question is, now, is it needed? And I would say yes, it is needed,” Berry said.
“From what I’m seeing, I’m seeing a lot of people who are the victims of financial misconduct. Now, the unfortunate thing is, this is the 5 per cent of financial advisers that you would collectively be happy to see out of the business. But unfortunately, they’re there, and we’ve got to look after these people because we need more people getting financial advice, not less.”
Part of the “big puzzle” of increasing the number of people accessing advice, he said, is creating a safety net that gives confidence that clients can trust and reach out to an adviser with whom they don’t have a prior relationship.
“When I look at the claims which have come through, there’s a few things that have really stood out, and they’ve been consistent across the board,” Berry said.
“One is, we’re dealing with a lot of very smart people, but when it comes to financial matters, the products are very complex, and they just don’t understand it. The financial literacy of the individuals is also not at the same level as a financial adviser, so they’re looking for somebody that they can trust.”
He noted that this is particularly necessary when entering retirement and the pension phase of superannuation, adding that “anything that can help that is a good thing”.
“The question is, how is it funded? And I think there is, from everything that I see, there is a need for the scheme. The challenge is, how is it funded? Who pays for it?” Berry said.
Phil Anderson, general manager of policy, advocacy and standards at the Financial Advice Association Australia, added that now that the CSLR is in place, it’s “unlikely that any government is going to remove” it.
“The question that they need to solve for is sustainable and equitable funding. At the moment it is, as David said, 85 per cent of this is being attributed to financial advice. I think that that’s a great unfair treatment of the way things go wrong and the contribution of product failure is not being adequately picked up,” Anderson said.
“We need to get that fixed. And then you look at from the perspective of who gets the benefit of the scheme. It’s broader than just financial advice and clients of financial advice, it gives confidence to all the stakeholders. So, there should be a more equitable sharing of the cost of this scheme.”
Berry explained that as the administrator, the CSLR has no discretion as to how it operates because it’s “all outlined in legislation”, however, he said what he can do is “be transparent”.
“That’s my commitment to financial advisers and to the industry associations, that we will be as transparent as we can be. If you feel that we’re not, ask the question,” he said.
“You know, I, in with everything that we put together, there’s a way that I describe Phil [Anderson]. He’s frustratingly smart. I’ve got to think through what are the [questions] that Phil’s going to ask, because I need to make sure that I’ve got an answer that is accurate and right. I’m not interested in giving you an answer that he wants to hear.”
He added that “keeping the channels of communication open” is key to the operation of the scheme and that the CSLR aims to keep financial advisers aware of what’s coming down the pipeline.
“Where I see things that someone is not going to like I’m not hiding them away, I’m reaching out to the industry associations and saying, ‘This is coming, we can’t change it, you’re not going to like it. How do we move forward with it?’” Berry said.
“And we’ll work as hard as we can to support this industry, because I’ve been involved with financial services for over 30 years. It’s something I love. I’m very passionate about, and I want to see it continue to go because it’s something that’s really needed.”
To hear more from ifa’s CSLR webcast, tune in here.
David, how many of the financial advice related claims are due when the adviser is recommending in-house products?
I don’t disagree that a CSLR is needed, but it’s purpose shouldn’t be to protect people who are wronged by companies that not only benefit from people that are put into poor products, but then close that business and continue advising the same customers under a different entity.
This is shameful.
This is going to upset a lot of my fellow advisers but needs to be said…..CSLR is a necessary requirement.
It is vital to have a funding mechanism in place to protect consumers from poor advice and/or mismanagement of their investments and endorses the professionalism of our industry.
However, I firmly consider that the funding mechanism from the remaining advice industry is somewhat premature.
The at fault advisers/directors/product providers who have contributed to the client losses should be held to account from the outset with recovery from any business and personal assets, particularly if the loss is deemed fraudulent. This would fall in line with existing legislation regarding the seizing of assets as a result of an offence or illegal activity.
In addition, ASIC should follow-up a permanent adviser ban due to fraud with the authority to redirect all his/her remaining advice fees to CSLR &/or provide the value of the business sale proceeds once a suitable purchaser is identified.
These would surely act as a deterrent to any fraudulent advice and would be far more acceptable to the remaining advice industry who would be comfortable in the knowledge that the conspirators of fraudulent advice have been appropriately dealt with prior to any requirement of compensation. At the very least, this would significantly reduce the onus on remaining advisers.
this is what PI insurance is for. Make it a require to pay for insurance ahead of time so advice is covered and they cannot phonix the business so clients can’t recover the money
David Berry, I am quite sure you would have a different view if you were being forced to pay compensation for something you did not do. The CSLR will have a funding problem when we see the next recession. Financial advisers are unfairly being held responsible for losses caused by financial product providers. The 15,500 current financial advisers simply do not have the capacity to fund losses caused by product providers. Financial advisers who can see this are already setting plans in place to leave the profession before 30 June 2025 and those who don’t will be overwhelmed and sent bankrupt by the unjust CSLR levy when the next recession hits. The CSLR in its current form is guaranteed to completely destroy the financial advice profession. However, I expect that is the intention of the self intetest groups who lobbied for this morally indefensible law.
To quote Mandy Rice Davies, “he would say that wouldn’t he”
Please answer this question Mr Berry. Why should I, a 35 year advice veteran, specialising in life risk advice only for nearly 15 years, be asked to subsidise product failure arising from recommendations from a dodgy vertically integrated advice business, when those clients were Investing on behalf of their own self managed super funds.The risk should be solely with the trustees of the SMSF
Everything about the CSLR stinks to high heaven and does not pass any pub test, even ones dreamed up by dopey politicians
If Berry wants to be transparent, he can start by telling us exactly what percentage of claims are due to a) a failed product; b) financial advisers employed by a product provider; and c) financial advisers recommending related party products.
The silence of people like Berry, and those in Treasury, ASIC, AFCA and Choice in calling out the massive problems with product conflicts of interest, is that we are now on the cusp of the unthinkable – with these product flogging jokers about to unleash UNqualified backpackers onto the community, using free financial advice as a sales tool to sell product. Advice which is completely conflicted and designed to sell, sell sell. This advice will bizarrely skirt most of the normal consumer protections afforded to financial advice clients. This is third world stuff, and it is only being allowed to happen because of the silence of those mentioned above.
As Paul Simon said, ‘like a cancer silence grows’
Should CSLR industry funding be linked to the level of complaints to AFCA? Easily & transparently assessable & targeted at those at fault. Given the vast majority of complaints to AFCA are brought against institutions, not individual advisers, this would seem fair & bring about behavioral change where its needed.
How about a CSLR to cover negligent and biased political decisions? Paid for by each politician at each level of government.
The ongoing operational costs imposed on good advisers is so high, its easier to simply stop providing advice & just manage your own investments. Providing advice today is becoming like negative gearing in a long-term housing bear market – you’re simply subsidising tenants for little financial benefit.
Product failure is almost always the root cause of losses , and to create a fair system product providers should be charged a fee on FUM to support the CSLR along side advisers. NO adviser reccoemends a product where they are not conflicted by ownership without a fundumental belief it is appropriate for their customers needs , yet when products fail for reasons outside of the advice community hands the fund is gone and the adviser is asked to carry the loss, once the adviser is penniless than the CSL comes in . Not a good means of supporting the advice and product providers
Dear CSLR, what other industry or profession is forced to pay compo for bad actors they have nothing to do with ?
How about a PBCS Politician’s & Bureaucrats Compo Scheme, so like complete Canberra stuff ups as Robo Debt that caused many suicides and cost tax payers $1 Billion in Compo. Why aren’t Pollies & Bureaucrats paying for Compo ?
Canberra says let’s make Advice more affordable with yet another load of impossible Red Tape costs.
How do we bill Dan Andrews $700M for losing the Olympics?
Another great example for the Pollies & Bureaucrats Compo Scheme to pay.
CSLR should just be for paid solely from super, banks, and insurance MIS… they are are they only ones that at the root cause of issues and client complaints and the major cause of client loss… just look at all the huge client losses over the last 10 years really it is the cause of investment failure and advisers are just continuely blamed yet the regulator ignores the directors, lawyers and accountants for running these businesses into the ground while paying themself large salaries.
What about Lawyers, Doctors, NSW Health, where is their CSLR? This is such a ridiculous concept.