FAAA urges Govt-funded CSLR voice for advice profession

The financial advice profession should be given a ‘friend of court’ voice when the Australian Financial Complaints Authority (AFCA) and the Compensation Scheme of Last Resort (CSLR) deal with advice firms which have become insolvent, according to the Financial Advice Association of Australia (FAAA).

What is more, the FAAA wants the Commonwealth to fund the ‘friend” regime as part of a formula to address the problems now surrounding the CSLR.

In its pre-Budget submission filed with Treasury, the FAAA said the Government needs to address the growing inequities in the CSLR by making it fairer and more equitable, including ensuring that any costs in any one year above the sector cap being paid for by the Government or spread across the entire industry.

“The government must make an immediate decision about what will happen to all costs above the $20 million industry cap to confirm that advisers will not have to cover the more than $70 million that is burdening the scheme currently,” it said.

“In the context that the 2026/27 financial year is likely to be worse, action this year that applies in future years is critical. Should the advice profession be forced to cover this estimated $200 million over the next two years, this would amount to around $13,000 per adviser,” the FAAA warned.

“This is a huge disincentive for new entrants to enter this profession or for existing businesses to employ new advisers. Action from the Government that provides confidence to potential new entrants and existing practices is essential. This cannot wait.”

On the question of its recommended ‘friend of court’ approach to AFCA and the CSLR, the FAAA said it was important that the profession be provided with a voice “where there is otherwise no-one left to speak on behalf of the advice given”.

“By bridging this gap, the initiative promotes accountability while reducing systemic risks associated with unrepresented claims, ultimately benefiting consumers and the broader financial ecosystem,” it said.

“In the short life of the CSLR, we have already observed a number of financial firms going into administration or liquidation, leaving clients exposed to a loss of investments and an inability to make a claim to recover the loss. The CSLR has provided a pathway for these clients to seek remediation, however this places the CSLR in a position where they need to then seek recovery from the firms where funds may be available or recovery action may be possible against the firm, directors or officers.

“This activity, including the resources to investigate the underlying conduct, is important in seeking to minimise the cost to those who would otherwise need to contribute to the cost of funding claims paid by the CSLR.”

“The CSLR needs additional powers to undertake that activity, however we also believe that they need to be separately and appropriately funded to undertake this activity to ensure that those responsible for misconduct are held to account for their actions,” the FAAA submission said.

“We believe this role could be played by an entity established and funded by Government as a ‘Friend of CSLR’.

“We seek government funding to support the establishment of a ‘Friend of AFCA’ and a ‘Friend of CSLR’ role.”