Govt must accept responsibility for CSLR moral hazard
ANALYSIS
It remains within the remit of the new Assistant Treasurer and Minister for Financial Services, Daniel Mulino to recommend that the Government pick up the additional costs which have taken the Compensation Scheme of Last Resort (CSLR) well beyond its sub-sector cap for personal financial advice.
As things currently stand, the financial planning profession is facing the prospect of the Government imposing a special levy to cover the difference between the $20 million and the revised levy estimate announced on Friday of $67.289 million.
But it is lost on no one in the financial planning profession that the bulk of the costs making up that additional $47 million is owed to an event which occurred before the legislation enacting the CSLR even passed the Parliament – the collapse of Dixon Advisory.
Equally, everyone well understands the moral hazard inherent in a regime which levies advisers but not financial product providers.
It is also not lost on anyone that the Government and Treasury are yet to release the findings of Treasury’s post-implementation review of the CSLR which has as one of its terms of reference the CSLR funding model.
The bottom line, of course, is that by back-dating the matters which can be handled by the CSLR to encompass matters such as Dixon Advisory the Government has substantially increased its costs and the pace at which claims are being handled mean those costs will not quickly wash through the system.
Indeed, as has been recognised by groups such as the Financial Advice Association of Australia (FAAA) there are looming new costs for the CSLR to handle in the form of the issues surrounding the Shield and Guardian Master.
While the Government, with its vastly increased majority, has no political imperative to fix the CSLR, it should delay the release of the Treasury review findings and it should be cognisant of long-run impact of choosing not to fix a system which is patently badly flawed.
FAAA chief executive, Sarah Abood was right last week to call for urgent and significant changes to the CSLR and the looming increasing and the multiple years of claims substantially above the sector cap.
“The vast bulk of CSLR claims have been generated by a small number of medium to large firms, and by the collapse of financial products: a sector that currently makes no contribution at all to consumer compensation under the CSLR,” she said.
“In contrast, the vast majority of those paying these levies run excellent compliant small businesses (92% of advisers work in firms with 10 or fewer advisers) who have not done anything wrong.”
For his part, SMS Association chief executive, Peter Burgess is right to question why the regulators are not doing more to detect problems “up-stream” before problems occur which add to the cost of the CSLR.
The scheme punishes the firms/advisers who stay on.
Recent firms involved in the First Guardian/Shield collapse who are no longer trading won’t have to pay a cent.
Boycott, Refuse to Pay, Demand change.
It’s time All Real Advisers stand up to corrupt bullying Canberra and end CSLR.
Get stuffed Canberra !!!!
Let them try to shut the whole Advice industry down.
They have been trying to shut the whole advice industry down for years. CSLR is just one component of the ongoing professional advice persecution regime.
Unfortunately one side of politics wants all consumer savings directed to union super funds. The other side of politics wants all consumer savings directed to the property bubble. There is no political support for professional advice or consumers’ best interests.
Yep so rather than death by 1,000 cuts, Advisers need to make a stand.
Make it a show down.
Dixons Government inquiry ?
Shelved, buried or corruptly hidden in the bottom draw of Nerida Coles Treasury office??
Where’s the Dixon’s MIS fiasco review Govt ??
Canberra won’t accept responsibility. Listening to Jones’ last interview before the election was farcical. There was no contrition, no acceptance that the CSLR was a mess, instead he defended saying that reviews were common post implementation.
For the last few years reading this website (and others) it was well understood in advance of the moral hazard issues at play with regard to the CSLR.
It was also understood that there was a massive risk that the scheme was inequitable, unethical and unsustainable.
Yet nonetheless, Canberra pushed on with it regardless (because they know better) and here we are.
The fact that Dixon made it in the scheme, in my opinion, was a total stich up. The second stich up was the pittance of Dixon claims that were covered by Govt.
Even the review is delayed.
It should be obvious to the adviser community that this isn’t an accident. In my view, this is 100% by design.
We shouldn’t be upset and disappointed anymore, I’m angry.
This is disgusting.
The problem with the advice industry is now and always was that it won’t self-regulate via calling out bad behaviour and wants the regulator to act as Mummy and do all the work. The regulator’s role is to set regulations and then – where possible and withing funding realities – to track down and punish bad behaviour. it CAN’T stop bad behaviour: it can only find it AFTER the event (all the while attempting to set strong enough regulations to assist in prevention). Be realistic. Sort out the baddies within your own industry. Dixons were lauded by many for a long time, despite many seeing them as playing that ‘gold stamp’ (even government departments seemed to think Dixons were above reproach, as did much of the media…this one included?? – or did you call them out??)
Financial advice will be rewarded for (being seen to be) protecting people from harm rather than attempting to make them wealthy. If advisers were any good at wealth creation they would not be advisers – they’d be wealthy and sitting on a beach with Mai-tais and the rest of the stuff of their dreams. And your smartest clients KNOW that. They want you to warn them off and away from problems using your inside knowledge. But if you don’t have any (and don’t demonstrate it by calling out the baddies) you have no value to those who use you OTHER than explaining the rules. Give up on investment advice if you’re not already wealthy from years of doing it yourself and tell people “I don’t know” when you demonstrably don’t know.
I’m out of it now and learned over my 42 years in advice that we know very little, but we do know more than our clients (about the rules and how to use them) and they are very grateful for that. They also appreciate us telling them how and why we don’t know any more about investing than most and that the key is to pick a strategy/pathway that won’t do too much harm (I like no more than 50% in “growth” assets and the balance in cash/term deposits, but you and your clients will have your own guess at what might work) and stick to it for 35 years or so!
Stop blaming others. Get on with it and don’t expect the “gummint to do sunthink about it” – they know no more than you, but they do get asked to control you lot, so they do their best…which isn’t any better than your best. Just sayin’…
Onya retired high hoarse hey Phil.
Dixon’s were widely criticised by many Advisers generally for their client compulsory flogging of dodgy in-house products.
Over 60 formal Adviser complaints to ASIC over a decade and ASIC still did nothing.
Not sure what planet of advice u were from ?
Social contract has failed.