Advice industry can't afford CSLR to be an 'unsustainable mess': FAAA

A recent survey conducted by the Financial Advice Association Australia (FAAA) shows the Compensation Scheme of Last Resort (CSLR) levy will increase the cost of financial advice and may see a significant departure of advisers from the industry.

The findings show nine out of 10 advisers expect the levy to increase the cost of financial advice, as firms move to pass on the impact of a potential $4000 per adviser bill.

To offset the cost, 79% said they will be forced to increase client fees. Others are considering scaling back investment in people, with 36% planning to reduce new adviser appointments.

It comes as almost half (44%) reported knowing colleagues who are planning to leave the profession, and 9% said they intend to exit the industry. Seventy percent believe the CSLR levy will result in a reduction in adviser numbers.

FAAA chief executive Sarah Abood said the findings highlight a growing disconnect between the intent of the CSLR and its real-world impact.

"The clear message from advisers is that the CSLR levy will be felt not just by advisers but also by consumers - through higher advice costs and reduced access to advice," she said.

"We are already seeing signs that the levy is affecting both retention of existing advisers, and the pipeline of new advisers. A continually shrinking profession will have long-term negative consequences for access and affordability of advice for everyday Australians."

"There is strong support amongst advisers for a more balanced and sustainable funding model. Financial advisers should not be bearing a disproportionate share of the cost for failures that occur elsewhere in the system when products collapse, and they should not be paying for the misconduct of a tiny minority of advice businesses that have done the wrong thing."

Advisers are now calling for the government to make significant changes to the CSLR scheme, with close to four in five (79%) urging to spread any special levy cost across the financial services sector on a more "even basis".

While 63% want to cap the total amount paid by the advice sector and 74% are calling to change AFCA rules to better allow investors to make complaints against the management of MISs and superfunds as a whole, the survey found.

Abood said the FAAA supports the principle of compensation for consumers, but the scheme must remain "fair and sustainable" to not undermine the ongoing viability of the advice profession.

Speaking at the FAAA Roadshow in Sydney on Thursday, FAAA general manager of policy, advocacy and standards Phil Anderson said the CSLR needs to be fixed to make sure "this isn't going to become an unsustainable mess."

He noted that with the inclusion of First Guardian and Shield Master Funds complaints, amounting to some $125 million, the CSLR will reach the annual cap of $250 million, along with the calculated levy ($126.9 million) for the next financial year.

Although he welcomed the government's announcement to invite all sub-sectors to share the responsibility of the scheme, Anderson said the current calculation will leave the advice sector bearing most costs.

"Now we're talking about around $665 per adviser for the special Levy, and up to $1312 per adviser for the FY27 base levy. However, if your licensee is also a securities dealer, or an MDA operator, or an insurance distributor, you could be paying more," he said.

He also lamented the broader issue involving the collapsed Shield and First Guardian Master Funds have unfortunately delayed the progress of the Delivering Better Financial Outcomes (DBFO) reform, noting that advisers need to remain patient for any outcomes.