Why it’s crucial advisers explain ‘catastrophic’ CSLR to clients

The only way to get the change in policy around the Compensation Scheme of Last Resort (CSLR) that financial advisers want, according to Peter Johnston, is to explain the harm it is causing and mobilise the profession’s client base.

Appearing on The ifa Show podcast, the Association of Independently Owned Financial Professionals’ (AIOFP) executive director said that, ultimately, all politicians want is votes.

“It’s all about them staying in power,” Johnston said.

“This is the big advantage the community has is that they’ve now realised that we have strong relationships around money and politics with our clients.”

He added that advisers need to “make a stand”, or the sector will be “treated exactly the way you have been treated the last 20, 30 years”.

While some in the profession may not feel it is their place to broach politics with their clients, Johnston argued advisers should be informing them of anything that is going to affect their financial position, and a “big determining factor there will be the fees they’ve got to pay per annum to get advice”.

“Now that’s going to substantially increase with this CSLR and also the ASIC levy, etc. So, I think you’ve got an obligation to tell them,” he said.

“Say ‘Look, this is what’s happening by the way, this is how we can stop it happening, this is who’s causing it and if you want to assist us to get this thing changed, well then I would not vote for them’.

“You don’t tell them who to vote for. You just say, just don’t vote for them because they’re the ones who are causing the problem. They can vote for whoever they want … But if you just explain the facts of life about what it’s going to cost them extra to actually get advice and say, ‘Well here’s the people who’s causing it and we would like you to send an email to them and tell them you’re going to change your vote or this is what’s going to happen unless you fix this problem’.”

In order to assist this process, the AIOFP has put together a draft letter for clients that explains the impact of the CSLR on advisers and an example of what they can send to politicians and candidates in their electorate.

“For those members who don’t want to push their clients on political preferences, the email will be from the AIOFP not their financial adviser, a form of ’good cop/bad cop’,” Johnston told ifa.

The letter to clients is as below:

The Albanese government has imposed the most unethical and devious legislation onto consumers and financial advisers in living memory. The CSLR will dramatically increase the cost of financial advice and will weaken consumer protection.

The Opposition did not originally oppose its passage through Parliament but have now pledged to change it after realising the unintended consequences. The Albanese government wants to defer any action until after the election, something we disagree with.

BACKGROUND BRIEF - Commissioner Hayne recommended in the 2019 Banking Royal Commission Final Report that a Compensation Scheme of Last Resort [CSLR] be established to protect consumers from poor advice and product failure. It specified that advisers paid for poor advice and banks/institutions paid for their products failing. The advice community supported its establishment, the banks and institutions did not.

THE PROBLEM - Unfortunately, the legislation was manipulated by the institutional/banking lobby in conjunction with Canberra bureaucrats to avoid accountability on any of their own products if they failed. In a cruel twist the legislation was further manipulated to ensure only financial advisers and their clients pay for the failed products, NOT the Institutions, an utter outrage.

RECOMMENDED ACTION – Only politicians can adjust the CSLR legislation to ensure Institutions are responsible for their own failed products and the best time is leading into a federal election when all politicians are desperate for your vote.

Advisers and consumers need to send a clear message to their local politicians that unless their party commits to changing the CSLR legislation before the election they will be positioned last on the ballot, they will not like that.

We suggest your client sends the following message to the sitting Member and Opposition candidate in their electorate:

Dear..., I am greatly concerned with the additional costs that may be imposed on my family by the Compensation Scheme of Last Resort [CSLR] flawed structure. Unless it is addressed before the federal election it will influence my family’s voting habits, we will put our least preferred party last on the ballot.

We will be seeking further political direction from our financial adviser.

It is critical that consumers and financial advisers send a very clear message to all politicians and Canberra bureaucrats that we will not be trodden on.

To hear more from Peter Johnston, tune in here.