Advisers ‘left paying the bill’ on CSLR

The CSLR estimate for the second levy period is $24.1 million, of which financial advisers will be required to pay $18.5 million, with the payment expected to be made in September 2024.

ASIC uses the estimate determined by the CSLR to calculate the leviable amount per entity, which the regulator said would equate to a minimum levy of $100 plus $1,186 per adviser.

According to Ben Marshan, founder of Ben Marshan Consulting, said that there are four elements of the CSLR that financial advisers should consider.

"Firstly, it is actually a levy on licensees, not planners; the ‘per adviser’ is just the scale metric for the levy,” Marshan told ifa.

“Secondly, the cost to a profession creates protection from both less professional individuals and competition.

“Thirdly, a factor in the cost is the profession not doing enough to call out poor behaviour when they see it, so it costs more for regulators, PI and CSLRs to fix up months, years, and decades later.”

Last, he said, the combined cost of the CSLR levy and the ASIC levy, at roughly $4,000, is less than that imposed on other professionals like doctors and lawyers.

“We sit here and criticise governments for raising taxes and not managing resources efficiently but complain that when levies are raised as the beneficiary of the licence – $4,000 is a small price compared to other professions for our licence to practice,” Marshan said.

He added that, given the inordinately large impact of the claims related to Dixon Advisory, the funding requirements should be reduced going forward.

“At a technical level, year one and two were always going to be problematic,” Marshan explained.

“Year one being the ‘top 10’ $250 million levy to deal with Dixon and a fund level corpus; year two being the first advice contribution and building the advice sector corpus.

“Assuming Dixon is sorted out under the ‘top 10 levy’ – the annual levy fee should stabilise much lower going forward. Particularly given the lower complaints rates being seen in advice the last few years – again, Dixon excluded.”

The additional cost, however, should serve as a warning for financial advisers to start “seriously looking at their advice process to make it more efficient and engaging and therefore more accessible and affordable to their clients”.

“This has a double benefit of reducing the instances of clients making a complaint and therefore potentially leading to a CSLR claim (and therefore continued higher levies), and a more efficient process will help them see more clients, increase their client base, increase their revenue and better afford regulatory levies,” Marshan added.

“It might also be another reason to look at some of the new PI offers based on individual planner risk rather than the way PI is traditionally priced, which could offset some of the cost of this levy.”

Cost is not just the dollar value

Speaking on an upcoming episode of the ifa podcast, Nathan Fradley said that while he can see the rationale for enabling access to compensation for consumers who have been negatively impacted by poor conduct, the solution isn’t aimed at the cause.

“These levies were introduced at a time where we were going through massive upheaval with the royal commission, and the biggest perpetrators then left altogether. They did a runner at the dinner table, and we were left paying the bill. So, I find it frustrating,” Fradley said.

He added that were it not for the constant upheaval that has been taking place in the financial advice sector, the new levy may not have the same impact or cause the same level of dismay among advisers.

“The cost of it is not the dollar value, it's the time and it's the mental drain that just keeps stacking on top of itself,” Fradley explained.

That cost doesn’t just break down into 12 monthly instalments of $100 for the adviser, he added – there are other impacts on the business.

“It's that I've got to allocate a couple of days a month to make sure that my business is always up to scratch, within the realms of my business planning,” he added.

“That means maybe I can't do an entire piece of advice a year. And you compound that over a couple of years, and now I've got to raise my fees 10 per cent, accordingly. That could be a direct impact, I'm just throwing those things out … back of the envelope stuff.

“It's just that constant layering. I think advisers just want to help their clients. And then there's something new.”