FAAA pushes for 'fundamental' changes to CSLR

The Financial Advice Association of Australia (FAAA) is pushing for "fundamental changes" to how the Compensation Scheme of Last Resort (CSLR) is funded, arguing it would be detrimental to financial advisers and small businesses if it continues in its current form.

To avoid this, the association wants the CSLR to capture managed investment schemes (MISs) within its funding framework, which it said have proven to be a "very significant contributor to client losses and unpaid determinations."

Credit intermediaries, credit providers, licensees providing financial advice and securities dealers are the only four sectors that fund the scheme.

Currently, consumers believe the only means to be compensated is to make a complaint against their financial adviser, the FAAA explains in its submission to the CSLR reform options to support the ongoing sustainability consultation that recently wrapped up.

"Thus, at present the MIS sector makes no contribution to resolving consumer harm that its failures have substantially contributed to. It also unfairly and inaccurately casts financial advice as the sole cause of consumer harm, insulating MISs from scrutiny and increasing the likelihood of further risk-taking behaviours in this sector," the FAAA said.

Given many advisers run small businesses, the FAAA said it is only fair the sector pays no more than the base levy of $20 million.

Treasury's proposed "waterfall approach" wants to apply the first $40 million of CSLR levies to financial advisers.

The FAAA called this "unfair and unaffordable" for small businesses and should be limited to $20 million.

Under the Enhancing member protections in the superannuation system consultation, the FAAA is opposing the proposed waiting period model for inter-fund superannuation switching, saying it already takes advisers a lengthy period to move clients with a fact-find, develop strategies and prepare a Statement of Advice.

Further, it "strongly opposes" any ban or limitation on advice fees being paid from super accounts for switching advice.

"There is no basis for such an intervention in the market, and this would only serve to disadvantage many Australians who have sought financial advice or who would seek advice if they could afford it," the submission read.

In response to Curbing lead generation activity proposed reforms, it is "strongly opposed to any proposal to remove or scale back the existing exemption for financial advisers" with respect to anti-hawking.

The exemption is "a critical measure to ensure that financial advisers can contact their clients when there has been meaningful change in circumstances that would warrant the adviser recommending to the client that they make some change to their existing portfolio, or to pursue a new opportunity that is in their best interests," the FAAA said.