CSLR ‘abomination’ should galvanise the profession: AIOFP

Following the Compensation Scheme of Last Resort (CSLR) levy attributed to financial advisers exploding to an estimated $70 million for the 2025-26 financial, Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston has said the “CSLR abomination is the catalyst to finally galvanise the advice profession”.

“The current acrimonious mood within the advice community over the CSLR is like no other issue in living memory. The anger is palpable, but we must however funnel this outrage into specific strategies that will make a meaningful difference to the plight of our profession, our businesses and consumers,” Johnston said.

“The timing could not be more perfect with the positioning of the political cycle and proximity to the election.

“It is also time we identified the real antagonists of our profession over the decades to understand who has been working behind the scenes in Canberra to convince politicians and bureaucrats to put in place such malignant legislation that is slowly destroying our profession. It is critical to understand who are our friends and arguably more important who are our enemies in Canberra.”

Johnston said the advice community needs take a leaf out of the Financial Services Council’s (FSC) ability to lobby for the financial services industry, however he argued advisers should be “continually vigilant of any involvement the FSC has with advice issues”.

“The FSC’s latest and greatest success for their financial institutional members has been moving the focus of CSLR away from [commissioner Kenneth] Hayne’s recommended structure to what we have today – legislation that is totally focused on penalising the advice community for other stakeholder’s incompetence,” Johnston said.

“It exonerates Institutional poor product management and ASIC for allowing flawed PDSs onto the market. Considering there has been around $40 billion of failed or impaired MISs since 2008, the FSC have done a magnificent job for the financial institutions to avoid accountability. Equally, they have unfortunately done a great job of shifting the cost onto the advice community and ultimately consumers.”

The FSC has been a prominent part of the chorus pushing back against the cost imposition of the CSLR on financial advisers, including that the so-called “but for” element of determinations be excluded from the scheme.

“It does not align with community expectations that 80 per cent of the compensation being paid by the scheme has been for foregone, hypothetical capital gains, not the actual losses a consumer has incurred,” FSC chief executive Blake Briggs said last week.

However, it is something of a lone voice among professional associations in arguing against the inclusion of managed investment schemes (MISs) within the scope of the CSLR, saying that it could “potentially increase the cost burden on financial advisers” and that there are “more appropriate mechanisms that could reduce the cost burden”.

“If complaints against MISs were to be brought within the scope of the CSLR, it is not immediately clear that basis for it not also being expanded to capture other subsectors such as banking, superannuation or insurance,” the FSC said in its submission to the Dixon inquiry.

According to Johnston, financial advisers are the “political scapegoat” and need to act immediately to influence politicians ahead of the as-yet unannounced federal election.

“We have a two-month window of opportunity to address CSLR’s outrageous ramifications if we are prepared to act with belligerence, combativeness and at times militancy to protect consumers, our businesses and our livelihoods,” he said.

“Ambivalently sitting back and doing nothing about this issue is not an option, it has the potential to widely destroy businesses and adversely affect consumers. Although we do not have the political and monetary capital of the FSC, what we do have is over 2 million clients who vote in federal elections, there is nothing more powerful with the political parties at this stage of the political cycle.

“It is time to use our collective political might to threaten the Canberra bubble and its inhabitants.”

Johnston added that the CSLR needs to remain front and centre in the lead up to the election, while also pushing back on the idea of Treasury conducting the review.

“The Minister suggesting Treasury bureaucrats will review CSLR is incongruent nonsense,” he said.

“Considering Minister Jones’ office is full of Treasury bureaucrats who originally structured and approved the CSLR/Dixon outcome and Treasury/ASIC bureaucrats are the victims of the Dixon losses, it is profoundly conflicted and an insult to our intelligence having Treasury review CSLR, it’s akin to appointing Dracula to assess the blood bank.

“Now is the time to use an independent third party to conduct the review if one is needed, which we believe is unnecessary. The legislation should reflect exactly what the Ramsay Report and Comm Hayne wanted from the outset, product manufacturers are held accountable for failed products and advisers for poor advice outcomes, it is that simple.”

Plan of action

The AIOFP’s plan for how to address the CSLR is focused on a three-step process that takes advantage of “the advice community’s powerful competitive advantage” – namely its 2 million clients that are impacted by rising advice costs.

The first step, Johnston said, is AIOFP action in lobbying both the government and opposition over the scheme’s failings.

“We specifically want the legislation changed to keep the product manufacturer community accountable for the failure of their own products and losses for consumers. As Hayne intended, financial advisers are only responsible for poor advice outcomes for consumers,” he explained.

“We also want the Dixon liability removed. It defies the non–retrospective intention of the legislation and it’s a financial product issue, not advice. The first party to agree with our demands will get preferential treatment and consideration from the advice community and their clients at the upcoming election.”

Johnston said advisers also need to be communicate with their clients about the “unfairness” of the CSLR and how much it is going to impact them through advice costs.

“We need to engage and enrage consumers with the unfairness of this legislation,” he added.

“Once a decision is made on which political party will co-operate, consumers will be asked to email their local sitting member about their decision to either support or oppose them.

“Suggesting the client to put the least preferred party last on the ballot is a politically effective strategy to intimidate. This action will be exceptionally powerful going forward, future politicians will be wary to infuriate our profession.”

Ultimately, Johnston said, the advice community needs to “act with haste”.

“For many practices, waiting another 3 years for the ideal phase of the political cycle again may be terminal for their business.”

‘Own worst enemy’: FSC pushes for unity

For its part, the FSC has called for unity among professional associations to best represent the sector and its consumers.

Speaking at an event in Sydney last week, Briggs said a clear lesson from his time as CEO of the FSC is how important industry unity is to “achieving effective advocacy in Canberra and with regulators”.

“At times the financial services sector has been its own worst enemy, with multiple competing bodies fighting amongst themselves, sometimes over esoteric questions of policy design,” Briggs said.

“Credit to the financial advice sector, with the merger of the FPA and AFA to create the FAAA being a significant step forward in unifying and strengthening the adviser voice.

“The FSC has worked closely with the FAAA and other bodies on the Joint Associations Working Group, perhaps for the first time – certainly in my memory – presenting a unified front on key policy issues.”

Indeed, Briggs argued industry co-ordination has played a critical role in getting progress on advice reform, despite the “slow grind”.

“It is the responsibilities of groups like the FSC and the FAAA to maintain consistent advocacy over the political cycle,” he said.

“This is exactly what we have been doing, and we are now in the enviable position of having a Labor Cabinet approved position on advice reform, and a commitment from both political parties to complete the job, either before the election or as a priority in the next term of parliament.”

He added that “splintering” the voice of the financial services industry only leads to negative outcomes for all involved and that “industry bodies with parochial views and deep political alignment should be a thing of the past.”

“My commitment to the superannuation industry is that the FSC will continue to jealously guard a position firmly in the centre of the political debate, not aligned to one party or the other,” Briggs said.

“The FSC is building its reputation as a respected, evidence-based policy body that delivers recommendations that are clearly in the best interests of the consumers we and our members serve.”