The submission stated that the advice sector is highly fragmented with 6,100 financial advice businesses in Australia, and 92 per cent of those working in a business with 10 or fewer advisers.

It claimed that further pressure, such as the significant contingent liability posed by the potential cost of the CSLR, will only make this situation worse.

“It will also serve to further increase the cost of financial advice, putting it out of reach of more Australians,” it continued.

“The FAAA provided a very comprehensive submission on the CSLR to the Senate Economics References Committee Inquiry into Wealth Management Companies. Our submission to the senate inquiry set out a great deal of analysis on what went wrong at Dixon Advisory and other corporate collapses, enabling these issues to be closely examined as part of the expected hearings.”

Furthermore, the submission stated that the inquiry is yet to hear from witnesses, and the key issues are yet to be the subject of the intense scrutiny that is necessary to get to the bottom of what actually happened.

In the submission, the association said it wanted to focus less on the Dixon Advisory case and more on the underlying issues with the design of the CSLR and what needs to be done to fix these problems.

It made a large number of recommendations, including a change to the law so that financial advice is not taking full responsibility for product failures when advice has been provided and a product fails.

Additionally, the submission recommended that the exposure of small business sectors, like financial advice, to a special levy, needs to be modified to ensure that it will never exceed the sector cap and suggested the sector cap be reduced to the original proposal of $10 million.

It also recommended the removal of the retrospective element of the CSLR, which it stated was contrary to the Ramsay Review and Hayne Royal Commission recommendations, and said the government must pay for all claims received before the commencement of the CSLR scheme.

“Consistent with the government’s original commitment, they must pay for the first 12 months of the scheme,” it added.

“The CSLR should operate as a genuine scheme of last resort, with payments on the basis of capital loss, without interest and only after all potential recovery action has been concluded.”

Other recommendations included:

• An entity should be appointed to perform a role similar to the Fair Entitlements Guarantee Recovery Program that undertakes every possible effort to recover funds from responsible parties.

• Changes to insolvency laws should be made to enhance the prospect of recoveries and to better enable responsible parties to be prosecuted.

• ASIC should thoroughly review financial firms where CSLR payments are made to investigate misconduct and to consider broader issues such as product failure and inappropriate business models. ASIC should also consider any potential breaches of insolvency laws.

“Our members are extremely proud of the financial advice they provide, the businesses they work for and the role of the financial advice profession,” it said.

“Our members were some of the first to raise awareness of the problems at Dixon Advisory with ASIC, as well as concerns about other historic collapses, and will continue to call out misconduct and the risk of detriment for clients.”