Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
FAAA to consult with Treasury over CSLR ‘unintended consequences’
The Financial Advice Association of Australia has secured an assurance from financial services minister Stephen Jones that it will have the opportunity to consult with Treasury on the controversial Compensation Scheme of Last Resort.
At the same time, the FAAA is pushing the government to set up a public inquiry into the Dixon Advisory scandal after the group was convicted of breaching best interests duty on dozens of occasions and losing $368 million for 4,606 clients. The association also wants the role of Dixon’s former parent group, E&P Financial, examined in the inquiry.
The promise of informing Treasury on the inherent iniquities in the CSLR is a boost for the FAAA, which has so far met with a refusal from the government to change course on the scheme. The FAAA supports the CSLR in principle, yet sees it as “economically impossible” according to chief executive Sarah Abood. The FAAA believes that the Dixons scandal – and those that come after it – will see blameless advisers pay for the sins of those that have committed malfeasance, which is as unfair as it is unsustainable.
“The burden should not fall on financial advisers who have done nothing wrong,” Abood said in May. “It is economically impossible for the small business financial advice sector to underwrite the failures of large listed firms.”
On Wednesday, however, Abood and FAAA chair David Sharpe met with the minister to discuss a number of issue including the cost of the scheme and whether it was operating as a true scheme of last resort. In the last few weeks advisers have been asked to pay more than $4,000 each as part of the first annual CSLR bill.
“We have told the minister that although we support the scheme, the funding model is completely unsustainable,” Abood stated this week. “The financial advice profession does not have the capacity to pay compensation to the clients of large listed entities which have done the wrong thing, and nor should we. We are looking at losses approaching $135 million for Dixon Advisory alone, with nothing in place to stop similar situations happening in the future.”
And while the minister has remained mostly mute on these concerns when they were previously expressed, the FAAA believe Jones is now listening. At a minimum, he’s now willing to put the association in the same room as Treasury to discuss the scheme’s arrangement.
“We believe the Minister has clearly heard these concerns and is genuine in his intent to work with us to ensure that the CSLR achieves the goal that we all support,” Abood said. “He has advised us that the FAAA will have the opportunity to work with Treasury to outline unintended consequences of the CSLR and listen to pragmatic and feasible solutions.”
Speaking to The Inside Adviser, Abood explained that no firm date for the consultation has been set, but the group has been assured that they have a commitment from the government. “We’re also keen to get the Australian Financial Complaints Authority and the CSLR itself involved,” she added.
