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‘It’s bittersweet’: CSLR head explains the challenge of punishing and promoting advice

Just how thin the line that Berry walks becomes clear when he outlines the two paradoxical objectives of the CSLR. He has to highlight the worst in financial advice, while making it seem better and more trustworthy in the eyes of the public.

To say the Compensation Scheme of Last Resort is contentious would be a gross understatement.

The actual formation of the scheme itself has been overshadowed by the Dixon’s collapse, the Australian Complaints Authority’s role in delaying their exile, the government’s retraction of its promised compensation support and the overall iniquity of a legislated funding model that forces good advisers to pay for the misdeeds of the bad.

These elements have been conflated somewhat to form the appearance of a calamitous start to the scheme. The advice community, faced with a bill of up to $5,709 per head for the first year, is angry and frustrated. The CSLR has become synonymous with a broken system.

  • It’s ironic, really, that the operator of the scheme, the newly formed CSLR Ltd, seems to be running quite smoothly in its infancy, recently publishing details of the first handful of claimants it has successfully processed.

    Speaking to the The Inside Adviser, CSLR Ltd’s inaugural chief executive, David Berry, chooses his words carefully. While the ire of advisers and their representative associations has so far been largely aimed at the government for bungling the scheme’s formation, Berry seems acutely aware that it wouldn’t take much for some of that vitriol to come the way of the team running it, fairly or not.

    “The legislation is really clear on what I can and can’t do,” he says. “The legislation was passed parliament, it went through both parties and had bipartisan support. And they all had the same information.”

    David Berry

    Berry’s predicament becomes apparent when he outlines just how paradoxical the two objectives of the CSLR are. He needs to highlight the worst in financial advice, while making it seem better in the eyes of the public.

    “We have two very different tasks,” he tells The Inside Adviser. “One is to pay compensation as a consumer protection agency, and the other is to increase trust in the financial services system and particularly financial advice.

    “The big priority is servicing the impacted, but in servicing them I’m also trying to make sure that the financial advice sector is seen as positive, because so many Australians are under-advised.”

    It’s a mandate he calls “bittersweet”.

    “I’m reticent to highlight the worst elements,” he says. “We need more financial advisers, not less.”

    Improved standards

    As it stands, Berry says the modus operandi for CSLR Ltd is to be as transparent as possible. He’s conscious that part of his role will involve highlighting misconduct by financial advisers, and there isn’t really a way around the negative connotations that come with that.

    One of its first cases involved a NSW family that was awarded a near-maximum $145,417 after their financial adviser provided “deceitful advice”, then “stole the money and fled the country”.

    Yet the CEO is keenly aware not only that financial advice is a much needed service, but that the industry is much improved. AFCA, which determines the dispute cases that the CSLR subsequently processes, earlier this year reported that financial advice-related claims dropped a combined 52 per cent in the 2021 financial year.

    Standards have “improved significantly”, Berry says, noting the ethics and education benchmarks, and consumers “should be getting more confidence”.

    Controlling the controllables

    Apart from supporting consumers, and wrestling with the punishment and promotion paradox, Berry says his biggest priority is to get the forecasted bill for the CSLR as accurate as possible.

    This task has been made difficult in the first year by the Dixons Advisory case, which has seen a flood of complaints jam in before AFCA exiles the defunct company. Cases can also take a long time to get through AFCA’s claims process, which makes forecasting problematic.

    Berry knows, however, that the funding model Treasury embedded in the scheme (the same ‘user pays’ model used to calculate the adviser levy, which a review already found to be “misaligned”), is a sore point for advisers. The chair of the Financial Advice Association of Australia, David Sharpe, himself an adviser, made this clear when he said he was “sick of being an adviser ATM machine“.

    CSLR Ltd can’t change the funding model, but Berry believes that it should get the estimates, which help the industry plan for the cost, as close to the final bill as possible.

    “We want to be able to forecast using our internal monitoring tools and say ‘this is what the levy will look like next year’,” he says. “We’ll likely give a range of figures but we still have a legislative process that we have to go through. We’re expecting that early next year, but for now we’re working on how we firm up what that range might look like.”

    Like most aspects of the scheme, the levy amount advisers will have to pay is largely out of CSLR Ltd’s hands. The cases come from AFCA, and the funding model is designated by the government. While he’s heading up a scheme that many believed is flawed in its construction, it’s worth remembering that those flaws were handed to Berry by its architects.

    The CEO doesn’t criticise the scheme itself, yet he’s savvy enough to make it clear that his mandate isn’t to fix the CSLR’s architecture but to make it as functional and efficient as he can within the parameters he’s been set.

    “The legislation is really clear on what I can and can’t do,” he says. “It was passed in parliament, it went through both parties and had bipartisan support. And they all had the same information.”

    Tahn Sharpe

    Tahn is managing editor across The Inside Network's three publications.

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