Australia’s financial advice community is in uproar over a “massive blow-out” in payments to financial misconduct victims which has placed the industry’s $150 million compensation fund in jeopardy.
The Australian Government has ordered a comprehensive review of the Compensation Scheme of Last Resort (CSLR) to ensure it is sustainable.
The financial advice and services industry describes the CSLR as unsustainable without urgent action. It criticised how the burden of funding the scheme has fallen unfairly and unevenly on a shrinking number of financial advisers.
The scheme was established in 2023 to pay compensation of up to $150,000 to eligible victims of financial misconduct.
Assistant Treasurer and Minister for Financial Services Stephen Jones said updated data from the CSLR operator showed industry would have to provide $78 million to compensate victims in 2025-26, largely due to the liquidation of one firm.
“Ensuring the scheme is sustainably funded will be an important focus of the review,” Jones said in a media statement.
Financial Advice Association Australia CEO Sarah Abood said her organisation was shocked to see the "eye-watering" costs for 2025/26 and had been told the numbers could be even higher for 2026/27.
She said the cost per adviser of the $20 million annual sector compensation cap would exceed $1,250 in 2025/26, and they had no indication of who would pay the special levy necessary to fund the remainder of the bill.
“It is not hyperbole to suggest that a figure of $70 million represents an existential threat to financial advice in this country,” Abood said in a statement.
Self Managed Superannuation Fund Association CEO Peter Burgess said his organisation supported the CSLR but the review was urgently needed
“The current funding model is clearly unsustainable and inequitable, posing a risk to the viability of the advice sector and the CSLR,” Burgess said in a media release.
The review was also welcomed by the Financial Services Council and CPA Australia, whose financial advice spokesperson Richard Webb said: “Financial advisers are paying the price for failed products and individuals who have left the industry, leaving the rest to pick up the tab”.
