CSLR – WHY WE NEED ASIC.
EXECUTIVE SUMMARY
Consumers and the Advice Profession badly need the exquisite skills and experience of the former CHOICE CEO, panel member of the RAMSAY REVIEW that led directly to the establishment of the Australian Financial Complaints Authority [AFCA] and the Compensation Scheme of Last Resort [CSLR] and now ASIC Commissioner, Mr Alan Kirkland.
No one has better credentials to rescue Consumers and the Advice Profession from the scourge of the Institutional lobbying power to avoid accountability and deflect their management incompetency blame onto other stakeholders.
The current lethal legislative capacity of CSLR will wipe out the Advice profession in the short to medium term unless all sides of Politics understand the threat and are prepared to act.
The ramifications for Consumers will be severe with the millions of baby boomers approaching retirement wanting and needing independent financial advice. With barely 11,000 practicing Advisers left assisting around 2 million clients any further loss of Advisers will be catastrophic for the millions of consumers needing assistance going forward.
The CSLR levy cost to Advisers will ultimately be passed back to Consumers through higher advice costs in the short term but this additional impost is driving Advisers out of the industry and is a major disincentive for the new Adviser to enter the Profession.
Simply put, the ASIC levy, CSLR Levy and the cost of PI Insurance upfront costs are literally strangling the Advice Profession, unless ASIC acts and assists the cause, there will be very little left to regulate in the Advice space.
It should be pointed out that ALL Advisers are subject to the CSLR Levy, including those working for Superannuation Funds where the Levy will be passed onto fund members.
In my 46 years in the Profession, the only comparable time for a morale this low was during the ‘suicide period’ of LIF/FASEA and the ban on Grandfathered Revenue, we cannot let that happen again. It is time for the thinly veiled ‘them and us’ negative attitude between and ASIC and the Advice Profession is put aside for positive humanitarian outcomes, it is that serious.
HAYNE AND RAMSAY
What Commissioner Hayne recommended in the Royal Commission with CSLR and what emerged with the final legislative structure is massively contradictory to say the least.
We contend that the Financial Services Council [FSC] and Australian Banking Association [ABA] actions to please their Institutional backers is not in the best interests of Consumers and a lethal threat to the Advice Profession’s survival.
Former Minister Jones recognised the dishonourable aspects of CSLR by referring the legislation to Treasury for assessment, an outlandish manoeuvre considering Treasury are the original architects of the Legislation and profoundly conflicted with the Dixon Treasury Bureaucrat victims involved.
If the Minister was serious, he would have suspended any further levies inflicted onto the Profession until the assessment was completed. Failing to do this suggests ‘kicking the can down the road’ to post election territory was front of mind. In addition, this review should be conducted by an external professional party not a conflicted Canberra based Bureaucracy with the ‘wrong skin in the game’.
Comm Hayne and Professor Ian Ramsay in his 2016/17 ‘Review of the Financial System External Dispute Resolution and Complaints Framework’ paper recommended both Financial Institutions and Financial Advisers should be separately held to account for failures in their respective disciplines – Institutions for their products failing and Advisers for poor/flawed strategic advice strategies.
Comm Kirkland was on the 3-person panel with Professor Ramsay that signed off on the abovementioned paper that went to then Minister Kelly O’ Dwyer in 2017. It should also be noted that AFCA is regulated by and answerable to ASIC, being an independent Authority some think AFCA are only answerable to their Board. This gives ASIC and Comm Kirkland unfettered power to influence the CSLR outcome once the Politicians adjust the legislation.
Comm Hayne also recommended CSLR should commence on 1/1/2008 allowing a retrospective opportunity for Consumers to recoup losses from past failed products where Institutions had avoided accountability [see page 36/37 of the attached document released by Treasurer Frydenberg in 2019].
This was of course never going to happen, there is no way the power of the Institutions via the ABA and FSC would permit such gumption. The grossly inexplicable final legislative CSLR outcomes influenced by the FSC/ABA contain the following unfortunate conditions –
• all MIS products and their Institutional owners are excluded from CSLR jurisdiction therefore zero accountability for their own products failing.
• Advisers are held accountable for the failure of Institutionally own products and currently been forced to pay a levy to fund their mistakes.
• the notion of retrospectivity was denied to circa 190 failed funds [see attached] but granted to the DIXON failure that suspiciously happens to have numerous Canberra Treasury Bureaucrats as personal investor victims.
We are disappointed that ASIC has not publicly opposed the CSLR legislative outcome at any point. Considering ASIC are the gate keeper of all Financial Products entering the market through their MIS registration process, an interpretation could be that they are in favour of Advisers being held responsible for the failure of Products they allowed onto the market.
ASIC is the regulator of the financial services landscape and for ASIC management to remain silent over a critical piece of legislation that heavily impacts Consumers must be viewed with skepticism. This is where we need Comm Kirkland to act. As one of 3 foundation panel members of the Ramsay Review, Comm Kirkland could not be happy with where the CSLR Legislation has landed, Consumers need him to educate all sides of politics on the foundation tenets of the Ramsay Review and what Comm Hayne recommended.
How can Financial Institutions who poorly manage their own products be permitted to discharge themselves from responsibility and then pass this cost ultimately and indirectly back to Consumers?
Our legal advice clearly suggests that the only way to inject some fairness and accountability into the operation of CSLR is to amend the legislation to force Product Manufacturers into the ‘tent’ where AFCA can hold them to account over the performance of their own products. This will provide greater protection and security for Consumers and save the Advice Profession from eventual extinction.
SUMMARY
The Advice Profession has always been in favour of a CSLR structure to protect Consumers from poor financial outcomes recommended by both Comm Hayne and Professor Ramsey during the 2016 – 19 period, it was then fair and equitable for all stakeholders. We also support the existence of AFCA.
The current FSC influenced CSLR Legislative arrangements allowing Financial Institutions to avoid accountability with the poor performance of their products and then diverting that cost onto the Advice profession is infuriating to say the least and a death sentence for the Profession.
This appears to be the finishing touches to the FSC’s objective over the past 11 years of removing independent advisers from the landscape. Who can forget their alliance with the FPA/AFA to introduce LIF, FASEA, Grandfathered revenue ban and heavy handed compliance measures?
The sad irony for Consumers is this CSLR levy imposed onto Advisers will be passed back to them anyway by Advisers who have been poorly treated by Canberra over the past 15 years and can no longer financially afford to absorb the cost.
We are hoping that Comm Kirkland’s background in Consumer protection and ASIC Chair Joe Longo’s leadership will now come to the fore for Consumers.
In Chapter 1.1 of the Ramsay Report titled ‘Context for the Review and Review Principles’, it clearly states who the Financial Services providers involved in the process should be – ‘Superannuation fund trustees [other than SMSF], approved deposit funds, retirement savings account providers, annuity providers, life policy funds and insurers who respond to complaints – collectively referred to as ‘financial firms’……. see attached photo.
There is absolutely no ambiguity over who should be held to account.
We will be writing to both Comm Kirkland and ASIC Chair Joe Longo requesting their assistance and forwarding this email to all members of Parliament.
The ongoing product failure events producing these CSLR liabilities strongly suggests the MIS product registration process is fundamentally flawed, perhaps this should be also an issue to be discussed and rectified going forward.
The future of the Advice Profession and the protection of Consumer savings are now more firmly and directly in the hands of Politicians and the ASIC Hierarchy like never before.
Peter Johnston | Executive Director
