Advisers should make Compensation Scheme of Last Resort levy payments under protest, according to legal advice provided to the Principal’s Community.
Despite suggestions in quarters of the advice sector to protest the levy by not paying at all, legal advice provided to the community by law firm K&L Gates partner Jim Bulling suggests making the payment accompanied by a “under protest and without prejudice” notation. This would ensure that any funding of levies does not compromise financial advice firms’ rights in relation to any legal action they may later choose to take.
The community was concerned about the “arbitrary allocation of liability” to the advice profession, and the misconduct they are being forced to pay for through the levy – specifically, misconduct by Dixon Advisory.
It wrote to Minister for Financial Services Stephen Jones on 17 July with a “Statement of Facts” challenging the validity of the levies, but has not received a response from the minister.
“[For] whatever reason he chose not to, he hasn’t responded,” Principals’ Community managing director Kon Costas tells Professional Planner.
“We know we have to make all of our community members aware of the Statements of Facts in greater detail so we can educate them around what are the some of the themes and issues that are out there.”
CSLR levies were issued last week, on 6 August, and are due to be paid by licensees by 18 September.
“From our perspective our communities all signed on to use this protest as something that they’ve got in their armoury,” Costas says.
Costas says they want to offer the payment under process letter to licensees and other industry leaders if they want to utilise it as part of a protest.
“This is not about providing legal advice, here’s a document that you can use for your own protest,” he says.
Costas says he’s supportive of the CSLR philosophically and believes it “has a place”, but requiring advisers to pay for misconduct by Dixon has “blown up” the scheme.
“There’s real grounds here for being able to deal with supporting the profession and the government really needs to listen to why we’re bringing this to everyone’s attention,” Costas says.
“Things like the Dixon case is a known matter. It’s been known from the start. It’s a black swan event, but we’re putting it front of the CSLR to the detriment of the CSLR with the government going back and not covering the costs associated with this known matter and having no response by the minister to this Statements of Facts.”
The CSLR levies have so far been broken into three periods: a pre-CSLR levy, which is $241 million and covered by the 10 largest financial institutions; the FY24 levy which was meant to be paid by the government, which controversially only paid for three months; and the FY25 levy of about $18.5 million to be paid for exclusively by the advice profession. The total FY25 levy equates to $1186 per adviser. Costas notes the FY26 levy using the actuarial numbers could well be five times the cost of the FY25 levy.
A backlog of Dixon Advisory claims in the system won’t be cleared before the advice sector is due to take over funding the scheme, a situation which has drawn the ire of professionals who remain in the industry and are paying for the misconduct of an unrelated entity and whose parent company is still in operation.
The scheme was designed as a “last resort” to compensate victims of financial misconduct if a company failed to pay a determination by the Australian Financial Complaints Authority.
Principals Community director of corporate governance Brian Pollock says the industry is “not best placed to fund this backlog” as detailed in the Government’s own briefing papers from 2023.
“That’s why the top 10 [institutions] were meant to fund it, and the government is meant to pick it up – because they were best placed,” he says.
The community briefed the opposition Minister for Financial Services Luke Howarth on its position earlier this week.
At an event in Sydney on the morning the profession received its levy notices, Howarth announced the Coalition would look at returning the sub-sector cap to $10 million, which is what it had proposed when in government.
As published in Professional Planner on 15 August 2024 – https://www.professionalplanner.com.au/2024/08/principals-community-offers-cslr-legal-challenge-over-arbitrary-allocation-of-liability/
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