Craig Brooke from KeyInvest shares insights with James Dunn from The Inside Network on private credit and the housing crisis. The Inside Adviser
Most of what Jones announced was already known, including the creation of a new class of advisers. But a few key elements – related to adviser education and scoped advice – should provide relief to an industry in dire need of reform.
‘So much wrong’ with CSLR, but Treasury not inclined to act
Despite the government having the authority to put a major stopgap on the damage to advisers being wrought by the Compensation Scheme of Last Resort (CSLR), the financial services minister will likely focus on other priorities in the lead up to the next federal election in the first half of 2025.
The problems with the scheme are numerous, according to the Financial Advice Association of Australia (FAAA), which stopped counting once it got to 23 according to its chief executive, Sarah Abood. Much of those issues require regulatory change, yet hope for this has been all but abandoned given the government’s legislative backlog leading up to a likely election call as early as March. Wholesale re-design of the scheme will have to wait.
There are a few changes the government can make, however, without legislative change. One of them, in particular, is a hot-button advocacy plank for the FAAA at the moment, which is pleading with financial services minister Stephen Jones to cap the maximum CSLR liability for the advice sector at $20 million.
At the moment, explained FAAA policy chief Phil Anderson (pictured) on a panel to close the FAAA’s national congress in Brisbane, the minister gets to decide who pays any overflow if the levy bill spills over $20 million.
“He’s got a few choices,” Anderson said. “Either distribute the levy over multiple periods, which is just not practical in the context of Dixon Advisory, because you just be drawing it out for 10 years. He can choose to charge it to the sector involved, or he can choose to distribute it over other sectors, including those who are not covered under the CSLR.”
The Dixon Advisory case and related compensation claims serve to exacerbate almost all the issues relating to the CSLR, including its potential to take the total bill over $20 million. Making E&P Financial, the former licensees of Dixons Advisory, pay what the FAAA’s members believe is a fairer slice of the compensation pie is one of the 23 issues canvassed by the association.
A more immediate and impactful change, however, would be getting a broader slate of stakeholders to share the bill, Anderson explained.
“As a small business sector, financial advice cannot afford to pay above that $20 million threshold, and therefore we’re saying that it’s up to the minister to find other sectors,” he said. “We can think of some good volunteers; the banks, the general insurers, the life insurers, the super funds and by all means, the managed investment schemes and fund managers who have contributed to a lot of the losses that have been sustained and end up in the CSLR.”
The FAAA believes the government itself should join the institutional providers on this list of potential payers, considering it shirked its way out of paying a fair share of the original CSLR bill. “The government committed to pay for the first 12 months, but they ended up paying for just three [months],” Anderson said. “In the end they really avoided the bills.”
Despite the slate of options available, however, the chances of the government doing something about the levy sans legislative intervention will come down to timing, and will.
There is time, but very little. The government still needs to finalise the current knot of Bills vying for assent before an election call, and non-legislative amendments will likely struggle to get a look in.
The question of will carries even less optimism. One of those legislative amendments, of course, should be the second tranche of the Delivering Better Financial Outcomes reforms. After repeatedly reassuring the industry that the reform Bill was “imminent” this year, it failed to appear. Despite the minister’s rhetoric, advice reform is clearly not on top of the priority list.
