Including the superannuation sector in CSLR does not achieve the goal of shared responsibility and fairness given the root cause of the misconduct often lies elsewhere, the head of the SMSFA said.
Peter Burgess, CEO of the SMSF Association, said the proposal by Assistant Treasurer Daniel Mulino to force the superannuation sector to compensate victims of bad financial advice is not “sustainable or fair” for such a disproportionate share of the cost of the CSLR to be imposed on a single subsector.
The AFR reported that Mulino said super funds are one of the options of the sectors that could be included in supporting the CSLR.
“There’s a section under the law which basically allows me to distribute that, taking into account a range of factors, including things like capacity to bear, ease of calculation, repeatability, the extent to which it relates to involvement in the actions themselves,” Mulino was quoted as saying.
Burgess said that while the SMSFA supports the cost being spread more widely and fairly, this can only be achieved by ensuring the subsectors in which the misconduct occurs are included in the scheme.
“The current CSLR does not reflect this shared responsibility as it excludes product manufacturers, including managed investment schemes (MISs),” he said.
“We believe this is a significant flaw in the scheme, given that manufacturers whose products are poorly designed and improperly fail do not contribute to the funding of the CSLR, yet they continue to cause significant consumer financial detriment.”
He added that in including the SMSF sector in such a scheme would create an unacceptable risk of moral hazard.
Phil Anderson, general manager, policy, advocacy and standards for the Financial Advice Association Australia said he believes the comment from the Assistant Treasurer was with respect to any super funds being part of a broad distribution of the special levy.
“I don’t think he was specifically calling out super funds, but the ability to issue a levy only applies to sectors that are covered by the Australian Financial Complaints Authority, so SMSFs would be excluded,” he said.
“Obviously, service providers to SMSFs that are covered by AFCA, such as financial advisers would still be caught or could be covered as part of part of a special levy, but it would not include the SMSF themselves.”
Anderson continued that superannuation funds are already levied for the ASIC funding levy, so this would be another levy that is related to the necessity of doing business.
“We appreciate that there are specific obligations, such as the best financial interest duty that applies to super funds, but it’s just like any other entity. Ultimately, if they make a contribution to the CSLR special levy, then that has to come from clients,” he said.
“Either in the short term, businesses can reduce their profit margins, but in the long term, they’ll seek to recover it from clients, so it makes no difference whether we’re talking about super fund members, about the banks contributing, insurers contributing, in all cases, it’s going to come from clients.”
He continued that he does not believe super fund members should be treated differently from other clients that ultimately might be expected to pay for the cost of the CSLR.
“When it comes to super funds whilst maybe some of the historical matters which are more SMSF related, the connection to super funds is not so strong. Certainly, when we talk about Shield and First Guardian, we’re talking about mainstream platforms that were contributing significant factors to the losses,” he said.
“Equally, the argument can be, why are risk advisers paying for poor advice that’s provided by supervisors. This issue across cross-subsidy is an issue whether we’re talking about between sectors or within sectors. The practical reality, the thing that the FAAA has long argued is that this special levy should be allocated as broadly as possible and on the basis of capacity to pay.”
The government in planning to announce how the 2026 financial year levy will be spread across the industry and broader changes to the CSLR at an industry meeting in early December.
Natasha Panagis, head of technical services for the Institute of Financial Professionals Australia said the institute remains “seriously concerned” about the CSLR and have called on the government to urgently reform the scheme to ensure it is fair, financially sustainable, and consistent with its original intent.
“Without prompt action, the rising costs threaten the viability of small advice practices and could further restrict consumer access to quality financial advice,” Panagis said.
