Amid the financial market developing, an important movement has started which could affect financial advisors and their clients in Australia. The coming up of some announcements given by CPA Australia, a prime accounting body, on a potential increase in the Compensation Scheme of Last Resort (CSLR) levy has set all matters into motion which reach all over the financial advice sector. This article will try to shed light on the levy increase of CSLR, its consequences for financial advisors, and, in a broad perspective, on consumers getting financial advice.
Understanding the CSLR Levy
The Compensation Scheme of Last Resort (CSLR) is a mechanism envisaged to cover compensation to retail clients owed by firms when unscrupulous advice is given by them and, if full compensation is not possible, the builder firm is insolvent or clearly unable. At the outset in order to revive consumer protection and confidence in the financial advisement industry, this levy was put into effect for the claims notably arising due to their misleading advice, particularly relating to specific financial products.
The Proposed Increase
Thus, CPA Australia has called for tentative protest on account of this increasing levy funding to the CSLR. This was mainly due to increased claim payments that are beyond expectations and a dire need to keep the scheme solvent and operational. The levy is collected from the licensees of financial services and the increase, proposed to be so enormous.
Impact on Financial Advisors
Damages, when wrought by the CSLR levy increase upon financial advisors, are of gargantuan proportion: it is huge. For many it would mean increasing operating costs, which, in turn, together with the increased tax by homeowners, will reflect in a repayment of advice fees. In the long run, this is a situation that could potentially run counter to the original intention of the scheme by making it hard to find someone on a normal income to afford financial advice.
Broader Implications for the Market
- Increased Fees to Consumers: The affordability of advice could run into a challenge as advisors start charging clients for the slide.
- Advisory Business Viability: The danger is that very small advisory firms might find it very hard to absorb those costs, possibly hence creating a market consolidation that impairs competition.
- Regulatory Hurdles: In case the raised levy proves a cause of instability with respect to the provision and accessibility of financial advice services, then the government and other regulating bodies should venture in to protect the entire regime.
- Potential Trust Erosion from Projected Increase in Consumer Costs: Not surprisingly, the scheme now considered able to instill trust in consumers is probably going to achieve otherwise, as this trust should be severely undermined once the consumer increasingly considers financial advice to be unaffordable.
Looking Forward
CPA Australia is advocating for a thorough reconsideration of the increase in CSLR levy. This might involve exploring funding mechanisms that do not place undue financial weight on financial advisors but essentially serve to protect customers. Additionally, the institute requests a comprehensive review of how this scheme is actually operating to ensure that consumer protection principles are fully met without any adverse consequences for the financial advisory industry.
Conclusion
Of prompt concern to all parties in the financial advice sector, CPA Australia’s warning with regard to the CSLR levy increase comes out more with a call for action. In particular, the need for a balanced vantage point between consumer protection and industry sustenance becomes more pressing. The eventual results will go a long way to shape how financial advice will be available to the Australian consumer.
