Government made ‘no attempt’ to calculate cost of CSLR on advisers: FAAA

The Financial Advice Association Australia (FAAA) has called on the government to acknowledge the “scale of the exposure the financial advice profession faces” after freedom of information (FOI) documents showed no proper impact analysis on the Compensation Scheme of Last Resort (CSLR) had been undertaken.

While the process normally requires consideration of the options, assessment of the benefits and costs, and consultation with stakeholders, the FOI documents obtained by the FAAA show that this was likely not undertaken.

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FAAA chief executive Sarah Abood said the strain that has hit the advice profession on the back of the CSLR implementation should have been foreseen and could potentially have been avoided if a proper impact analysis had been conducted.

“There appears to have been no timely analysis done on the costs and benefits of the CSLR. Statements were made that the Hayne royal commission process was considered to be the equivalent of an impact analysis,” Abood said.

“We believe that this decision is deeply flawed and inappropriate in the circumstances. The royal commission had a different purpose and was finalised over four years beforehand: well before the extent of the failings at Dixon Advisory were known and well before the legislation for the CSLR was considered by Parliament.

“There appears to have been no attempt to calculate the likely costs to advisers who are funding the scheme, or to assess whether these costs are affordable or sustainable, and the likely impact on the overall cost of advice to consumers.

“This is deeply disappointing. We are calling for the government to acknowledge the scale of the exposure the financial advice profession faces and to undertake an urgently needed review of the CSLR legislation, to ensure that the CSLR is fairly and sustainably funded.”

The FAAA originally requested the documents on 18 August 2024 yet they were not provided until this month and are heavily redacted.

According to the Office of the Australian Information Commissioner (OAIC), the standard time frame to process an FOI request is 30 days. However, the Freedom of Information Act 1982 (FOI Act) contains a number of extension of time provisions.

Abood said the FAAA has continued to investigate the circumstances surrounding the Dixon Advisory collapse and the way the CSLR was established.

“If the government is serious about ensuring the fairness and sustainability of the CSLR, it must act now to rectify the many flaws that have emerged since the scheme was established,” she said.

Last year, the FAAA met with Financial Services Minister Stephen Jones to raise the various issues with the CSLR, including the cost imposed on financial advisers and whether it is operating as a “last resort”.

“We have told the minister that although we support the scheme, the funding model is completely unsustainable,” Abood said at the time.

“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.”

In September 2024, the Senate approved an inquiry into the collapse of Dixon Advisory, examining how the failure influenced the development and ongoing viability of the CSLR, which is scheduled to report by the last sitting day in March 2025.