The financial advice profession faces its most significant funding challenge yet as Treasury launches emergency consultations on extraordinary levies to address the Compensation Scheme of Last Resort’s blown budget. With the scheme already exceeding its caps just months into operation, Assistant Treasurer Daniel Mulino announced three potential options for managing excess claims, signalling what could become an ongoing burden for compliant advisers who find themselves funding the failures of their departed colleagues. This week also brought fresh regulatory guidance on conflicts of interest after two decades of unchanged rules, while adviser numbers showed tentative recovery signs and the investment landscape wrestled with inflation data that may finally give the RBA room to move.
Advisers, Advice Practices and Clients
The advice profession’s recovery showed promising signs this week with continued focus on rebuilding adviser numbers, as the industry grapples with making the profession more attractive to new entrants. The ongoing challenge of adviser distribution remains a critical issue, with large AFSLs not representing the majority of advisers, highlighting the fragmented nature of the profession across different business models and regions.
ASIC’s announcement of a comprehensive review of its 20-year-old conflicts of interest guidance represents the regulator’s recognition that advice delivery has fundamentally changed since 2004. The review will examine how advisers manage competing interests in an environment where vertical integration has largely disappeared but new forms of influence through platform arrangements and product recommendations persist. ASIC has flagged potential conflicts in research and product selection as key areas of focus, with the regulator noting that guidance drafted before the Future of Financial Advice reforms needs updating to reflect current realities.
The practical challenges facing advisers came into sharp focus through new research revealing the three-body problem in advice delivery, where competing gravitational forces between compliance requirements, client needs, and business sustainability create unpredictable dynamics. Practices are increasingly turning to technology solutions, with tech adoption potentially requiring a complete reset of traditional business models. However, concerns about technology reliability persist, as highlighted by charges against a former adviser over robotic trading technology that allegedly led to significant client losses.
Client engagement patterns are shifting, too, with advisers working to manage client expectations effectively in the current market environment. To help advisers navigate the complexities of their role, a new e-book has been launched to provide practical guidance that can be shared with clients. The push to serve 200 clients, throwing adviser burnout risk into the spotlight, reveals the tension between business efficiency and service quality. Cultural fit has become a dealbreaker in advice M&A activity, signalling that successful consolidation requires more than financial synergies.
The Regulatory Environment
Treasury’s consultation on CSLR special levy options dominated regulatory news this week, with the scheme having already exceeded its statutory caps after paying out claims related to Dixon Advisory’s collapse. The three options under consideration range from spreading excess costs across all CSLR sub-sectors to targeting specific sectors based on claim origins. The financial planning sector faces potential bills running into tens of millions, raising questions about the fairness of making current advisers pay for the failures of firms that left the industry years ago.
ASIC’s enforcement activities intensified with the ban of Ian Potter from Superannuation Advice Australia for supervision failures, marking the first time a professional year supervisor has been banned. The regulator also flagged conflicts of interest as a significant risk for private markets, signalling expanded scrutiny beyond traditional asset classes.
The Quality of Advice Review implementation remains a top priority according to Assistant Treasurer Mulino, though concrete timelines remain elusive. Mulino’s doorstop comments indicated the government continues to work through the recommendations, but provided no timeline for legislative action. Meanwhile, APRA imposed capital penalties and licence conditions on Keyinvest, demonstrating the prudential regulator’s increased focus on operational risk management.
Professional standards enforcement saw multiple advisers banned for supervision failures, with ASIC taking action against practitioners who failed to act in clients’ best interests or maintain required competency standards. The debate over education requirements continues, with the profession questioning how advice can bring in new entrants given current barriers, as the degree mandate and other requirements create challenges for attracting talent, while consumer advocates maintain that higher standards protect vulnerable clients.
The Economy, Investments & Platforms
Wednesday’s inflation data showing headline CPI falling to 3.4% provided the week’s most significant economic news, with underlying inflation also easing to 3.8%. Treasurer Jim Chalmers highlighted that this marks the lowest quarterly inflation since early 2021, though markets remain divided on whether the improvement gives the RBA sufficient room to begin cutting rates. CBA formed a strategic wholesale alliance with JP Morgan Asset Management, signalling major banks’ continued push into wealth management following the data.
Platform providers accelerated their innovation efforts, with HUB24 recruiting a Vanguard sales manager to strengthen distribution and new platforms emerging to streamline advice delivery. The shift toward managed accounts continued, with advisers increasingly adopting these structures to deliver consistent portfolio management while reducing administrative burden.
Fund managers faced mixed conditions as expanded private market options created both opportunities and distractions for advisers navigating client portfolios. The launch of new private markets platforms created opportunities for broader access to alternative investments, though ASIC flagged conflicts of interest as a major risk in this rapidly growing sector. T. Rowe Price brought a new research-backed equity strategy to market, highlighting continued product innovation despite market uncertainty.
The global economy is experiencing a slowdown despite easing trade tensions, creating a complex environment for portfolio construction. Alternative investment options expanded, but advisers warned against excessive choice, particularly in private markets where liquidity constraints and valuation challenges persist. The Productivity Commission’s recommendation for corporate tax cuts added another dimension to investment considerations, with potential implications for equity valuations and economic growth.
The Superannuation & Retirement Landscape
Superannuation funds faced increased scrutiny over governance practices, with ASIC flagging conflicts of interest as a major risk across private markets where super funds are increasingly active. The GNGB guide warned super funds about hidden risks in fund transfers, highlighting operational challenges in the consolidating sector.
REST called for superannuation performance test reform, arguing the current Your Future Your Super framework fails to capture genuine member value. Industry funds are working on giving more members the correct information at the right time, developing sophisticated engagement strategies to improve retirement readiness. The debate over Division 296 continued, with alternative proposals emerging to tax superannuation more equitably while addressing implementation challenges.
SMSFs faced challenges with failed pension processes, while advisers called to maintain LRBA single asset treatment to preserve investment flexibility. The importance of proper trustee discretion in death benefit payments gained attention following disputes over estate distributions. Assistant Treasurer Mulino indicated DBFO reforms remain a priority, though Tranche 2 implementation faces complexity challenges.
Life Insurance & Client Protection
The life insurance sector faced renewed pressure as CALI urged the government to act on genetic testing legislation, with insurers wanting action on the promised genetic test law to provide certainty around underwriting practices. The debate highlights ongoing tension between consumer protection and insurer risk management in an era of advancing medical technology.
CALI launched a review of the Life Insurance Code of Practice, with Peter Kell appointed to lead the independent review. The review comes as the sector continues to grapple with sustainability challenges following years of poor claims experience and premium increases. Assistant Treasurer Mulino prioritised second DBFO additions, recognising the importance of appropriate insurance coverage within superannuation.
The sector’s recovery remains fragile, with advisers navigating between client affordability concerns and the need for adequate coverage. Product innovation continues as insurers seek to balance risk management with customer value, though the fundamental challenge of making quality life insurance both accessible and sustainable persists. The genetic testing debate exemplifies broader questions about how the industry adapts to technological and medical advances while maintaining the principle of pooled risk that underpins insurance.
In the Background: Key Adviser & Licensee Movements
The consolidation trend continued with major super fund mergers dominating headlines, as Aware Super and TelstraSuper entered merger formalities, potentially creating a “Big 5” in the superannuation sector. CareSuper and MIESF scheduled their merger for October, continuing the sector’s rapid consolidation.
At the adviser level, big AFSLs don’t represent the majority of advisers, with smaller, more nimble licensees gaining traction. Licensees are being seen as the first line of defence against product failure, increasing their gatekeeping responsibilities. The focus on how licensees can ensure they are cyber secure reflects growing technology risks in the sector.
In fund management, Bennelong boutique shut up shop, highlighting challenges facing smaller managers, while JANA grew its NFP consulting capabilities with a senior appointment. These movements reflect the ongoing reshaping of Australia’s financial services landscape, with scale increasingly crucial for survival while specialist expertise commands premium valuations.
Key Takeaways for Your Practice
The CSLR excess levy consultation demands immediate attention; regardless of your firm’s claims history, you may face significant additional costs to fund the scheme’s shortfalls. Engage with the consultation process through your professional association and consider the cash flow implications of potential extraordinary levies in your business planning. The concentration of claims from departed licensees raises fundamental questions about cross-subsidisation that deserve vigorous industry response.
ASIC’s conflicts of interest review presents an opportunity to influence guidance that will shape compliance requirements for the next decade. Document your current conflict management processes and identify areas where 20-year-old guidance no longer fits modern practice realities. Consider how platform relationships, referral arrangements, and fee structures create potential conflicts that weren’t contemplated in the original guidance.
With inflation moderating but rate cuts still distant, client conversations need to balance optimism about economic stabilisation with realistic expectations about investment returns. The growing divergence between Australian and global monetary policy creates both opportunities and risks in portfolio construction. Consider whether your current strategic asset allocations remain appropriate given the changing correlation patterns between asset classes.
The acceleration of managed account adoption and platform innovation offers efficiency gains but requires careful consideration of best interest duties. Evaluate whether these structures genuinely improve client outcomes or merely streamline administration. As technology solutions proliferate, maintain focus on where human advice adds irreplaceable value, particularly in complex emotional and behavioural aspects of financial decision-making.
Mental health claims trends in life insurance and the evolution of product definitions require proactive client communication about coverage adequacy. Review existing policies for definition changes and ensure clients understand any gaps that may have emerged. The shift toward wellness and prevention programs presents opportunities to add value beyond traditional risk transfer, positioning insurance as part of holistic wellbeing strategies.
Finally, the continued, gradual improvement in adviser numbers suggests the profession’s value proposition remains strong despite regulatory challenges. Investment in professional development, particularly around emerging technologies and evolving client needs, positions practices for growth as the advice gap widens. The contrast between consolidation at the licensee level and specialisation at the practice level indicates multiple successful business models can coexist; choose the path that aligns with your vision and capabilities.
Article by:
Comments0