The cost of a scheme that compensates Australians for financial misconduct has blown out, angering the financial advisers who pay the levy that funds it.
The Compensation Scheme of Last Resort (CSLR) estimated the levy would be A$137.5 million (US$89.4 million) for the 2027 financial year (FY27), 82% than the revised FY2026 estimate and more than six times the $20 million cap for the financial advice sector.
CSLR CEO David Berry said the initial estimate, which may be revised later, did not include the impact of the Shield and First Guardian master fund collapses, which have cost members more than $500 million and could not yet be reliably estimated.
“The rate and scale of firm failures aren’t slowing. The number of impacted consumers continues to rise, and the proportionate negative impact caused by a relative few remains significant,” Berry said in a media release.
The Financial Advice Association Australia (FAAA) urged the Government to make urgent and significant changes to the CSLR to ensure its fairness and sustainability.
CEO Sarah Abood said it was imperative that financial advisers did not pay more than the already high $20 million sector cap, particularly considering most of the levy was paid by small, privately owned firms with very limited capacity to absorb extra costs.
“This puts a focus on the need to address sustainability of the CSLR as well as the need for greater certainty with respect to the funding,” Abood said in a statement.
The Financial Services Council (FSC) called for the cost of the CSLR to be brought to sustainable levels.
FSC CEO Blake Briggs said the FY2027 estimate breached the financial advice sub-sector cap by “a staggering” $106.9 million and without urgent reform to the CSLR’s design special levies would be required to meet the gap for the foreseeable future.
“This is another blow to law abiding financial advice businesses who face continued cost pressures and who will again be called on to pay up to the $20 million sector sub-cap, and potentially above it, for the wrongdoing of others,” Briggs said in a media release.
The CSLR pays up to $150,000 to compensate consumers with unpaid determinations from the Australian Financial Complaints Authority when all other reasonable avenues to recover the money have been exhausted.
CPA Australia urged the Government to fast-track its review into the levy, saying the that the CSLR funding model was broken and it was deeply concerned about the future of the financial advice sector.
“Financial advisers are paying the price for failed products and individuals who have left the industry, leaving the rest to pick up the tab,” CPA Australia’s financial advice spokesperson Richard Webb said in a media release.
