Eight of Australia’s largest financial advice industry associations have issued a joint statement opposing the design of the compensation scheme of last resort, which was recently revealed in draft legislation released for public consultation.
The Institute of Public Accountants (IPA) has been joined by Chartered Accountants Australia and New Zealand, CPA Australia, the Financial Planning Association of Australia, the SMSF Association, the Association of Financial Advisers, the Stockbrokers and Financial Advisers Association and the Boutique Financial Planning Principals Association Inc. in voicing concerns that financial advice will become less affordable and accessible under the suggested scheme.
Together they are calling on the government to “amend the draft legislation to ensure the proposed scheme can only be used as a last resort, is appropriately calculated and applies to all financial service industry participants”.
The financial services royal commission recommended the establishment of a compensation scheme of last resort to settle unresolved compensation for consumers once all other avenues had been exhausted. The financial bodies said the proposed legislation could easily become a go-to option, rather than the final recourse.
All eight associations said they support a last resort compensation scheme that truly functions as such, but they opposed the current model, which would include the Australian Financial Complaints Authority’s (AFCA) outstanding expenses but fails to address the causes of unpaid consumer compensation.
A scheme that does not function genuinely as a last resort will not fulfil the royal commission’s recommendation, the associations said.
Additionally, the draft legislation proposes to establish a CSLR operator as a subsidiary of AFCA, which the bodies believe creates unnecessary red tape by requiring ASIC to administer invoices and payments, and increases the government’s administration costs of the financial advice sector.
Moreover, under this proposal, the scheme would not apply to some industry participants, such as product manufacturers.
“Responsibility for consumer losses and complaints should be shared evenly across the sector,” the associations stated.
“This means that manufacturers whose products are poorly designed and improperly fail won’t have to contribute to the compensation scheme.”
The associations point out that ASIC fees for financial advisers have increased by more than 230 per cent over the past three years, making the coast significant for financial advisers who are sole traders or small businesses.
Escalating regulatory costs have already driven many advisers from the industry. According to the financial associations, the total number of financial advisers has now fallen below 20,000, which will not be sufficient to meet the demand for financial advice driven by the COVID pandemic and Australia’s ageing population.
The proposed scheme, they believe, will further reduce adviser numbers.
Each of the associations will be making their own individual submissions in response to the draft legislation.
