Financial Advice Association Australia (FAAA) CEO, Sarah Abood, has called Financial Services Minister Stephen Jones to take action on the drastically escalating Compensation Scheme of Last Resort (CSLR) costs.
According to the FAAA, an update from AFCA earlier this week – noting a further 544 complaints about Dixon Advisory have been made since 15 February 2024 – means the financial advice profession will have to pay an estimated additional cost of approximately $65 million.
This equates to a direct cost to every financial adviser of $4,165 on top of what has already been disclosed by the CSLR, which the FAAA said is a “huge impost for the financial advice profession that is already dealing with declining numbers and spiralling costs”.
“The Dixon Advisory AFCA membership has already been extended twice and the entity was put into administration over two years ago now. We urgently call upon the AFCA board to clarify the process and timing for that membership to end,” Abood said.
“We also urgently, again, call upon the government to review the funding model of the CSLR. Not only is it completely unfair, but it is also economically impossible for the small business financial advice sector to underwrite the failures of large listed firms.
“Why should financial advisers pay for the failure of Dixon Advisory, a subsidiary of the large listed group Evans and Partners, which earned over $174 million in revenue last financial year?”
She added that the matter represents an “existential threat to our profession”.
“The minister has not yet responded to our many requests for engagement on this matter, and we call upon him again to work with us urgently to find a sustainable solution to this crisis,” Abood said.
I note that in 2018 CBA paid a $700 million fine for AUSTRAC non-compliance and apparently Westpac some years earlier paid $1.3 billion for similar non-compliance. Where do funds from penalties go? Affected industries and the public at large should demand that penalties are segregated from consolidated revenue and first applied to regulatory costs such as AUSTRAC, AFCA & ASIC. It is completely unjust to make compliant industry participants fund the regulation costs.
This is a bigger failure of the regulation of the industry that has now moved to a profession without the regulation adapting to the profession.
The simple solution will be for every adviser to be registered with ASIC. This is already the case.
Every adviser becomes responsible for their requirements similarly to Accountants and solicitors with the law being adjsuted accordingly.
Agree Sarah. Both AFCA and ASIC in my view are totally disconnected from the field of financial advice. AFCA themselves are facing numerous issues in funding and significant turnover of staff. The ASIC committee responsible for the good governance in financial advice are themselves out of touch. The process of licensing itself needs to change. More concerning that Dealer groups do not have a good value proposition when it comes to renewing PI insurances with their insurer.