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FAAA Questions Significant Rise in AFCA Claims Handling Costs
FAAA Questions Significant Rise in AFCA Claims Handling Costs
The Financial Advice Association of Australia (FAAA) is pressing the Australian Financial Complaints Authority (AFCA) to justify projections indicating a substantial increase in its claims handling costs.
According to an actuarial report, these costs are expected to jump from $12,450 per claim in 2024/25 to $21,334, a surge that raises concerns among financial advisors and industry stakeholders.
This report highlights broader worries about rising expenses associated with the Compensation Scheme of Last Resort (CSLR). Concerns also extend to the Australian Securities and Investments Commission (ASIC), whose costs are predicted to almost double by the next financial year, according to the document.
FAAA's general manager of Policy, Advocacy, and Standards, Phil Anderson, described the expected increase in AFCA fees as "huge" and emphasized the lack of clarity from AFCA regarding the reasons behind this development. These projected costs, if confirmed, would present significant financial burdens, particularly for those within the financial advice sector dealing with a range of compensation cases.
The report estimates that AFCA's fees will catapult from $1,978,000 in the current fiscal year to a staggering $13,989,000 by 2026/27. Anderson cautioned that if these increases materialize, they could jeopardize the pre-CSLR total cost, an area of concern for financial advisers already carrying significant fee obligations.
Furthermore, Anderson underscored that legislative changes early in 2023 have placed additional financial pressures on the advice sector, mandating contributions towards costs incurred before the CSLR took effect. For instance, there are currently 1,654 pre-CSLR Dixon Advisory cases, and rising AFCA processing fees could add an unexpected $14.7 million to the financial load.
This situation remains under scrutiny from various industry bodies as they await further official verification and explanation from relevant authorities, including AFCA and ASIC.
Published:Thursday, 20th Feb 2025
Source: Paige Estritori
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