The Institute of Financial Professionals Australia is calling on the government to urgently reform the Compensation Scheme of Last Resort to ensure fairness, sustainability and alignment with its intended purpose.
Natasha Panagis, head of technical services for the IFPA, said without immediate changes, the escalating costs risk driving small financial advice firms out of business and reducing access to quality financial advice for consumers.
It re-emphasised the recommendations it made in its original submission to Treasury in February, which recommended that the government should fully fund the first 12 months of the CSLR as originally promised.
Additionally, it said that the scheme should not apply retrospectively, and all legacy complaints predating its implementation should also be funded by the government.
Panagis said the IFPA would also like to see the reinstatement of the financial advice sector cap to $10 million to prevent disproportionate levies on advisers and a limit to compensation strictly to actual capital losses to ensure the scheme is a true last-resort mechanism.
Other recommendations from the IFPA include:
· Extending the CSLR contributions to product issuers and manufacturers, particularly managed investment schemes.
· Including the general and wholesale advice sectors in the CSLR to prevent financial advisers from shouldering claims beyond their responsibility.
· Reforming insolvency laws to improve recovery efforts and prevent corporations from using liquidation to evade compensation payments.
“The financial advice sector has been shrinking in recent years, and the rising costs associated with the CSLR may further accelerate this decline,” Panagis said.
“This has far-reaching consequences: rising costs for consumers, pushing financial advice further out of reach for everyday Australians; an increased financial burden on existing advisers, penalising those who have done nothing wrong for the failures of others; and a deterrent for new entrants to the profession, making financial advice a less attractive career path.”
She added that the IFPA is urging the government to act now to prevent further unintended consequences and ensure a viable and fair CSLR that protects consumers without jeopardising the financial advice profession.
