The Compensation Scheme of Last Resort has endorsed industry concerns its funding model won’t be sustainable and has expressed as much to the Minister for Financial Services Stephen Jones.
At the AIOFP Conference in Canberra on Tuesday, CSLR chief executive David Berry said the size of the FY26 levy will be “significant” and the financial advice sector is unable to bear the burden of covering it.
The CSLR had flagged in an announcement last month the FY26 levy would push past the $20 million subsector cap.
“It would be detrimental to the whole financial system, and I’ve made that clear to the minister,” Berry said on a panel chaired by Conexus Financial* editor-in-chief Aleks Vickovich which also included AFCA lead ombudsman for advice Shail Singh.
“Up to a certain threshold it does benefit the industry so the industry does have a responsibility to help make sure that that safety net is there because those protections will give people trust in the advice sector.”
To exceed the subsector cap, the difference would have to be approved by the minister of the portfolio, currently Minister for Financial Services Stephen Jones, who would also be required to choose how the additional levy is funded.
With an election due next year, which Newspoll data is currently showing as a toss-up between either major party, it could potentially be up to a new minister to approve the special levy.
“Assuming the election is called early in February, we will be lodging with Parliament the instrument for the full levy for next year. It will be an amount more than $20 million,” Berry said.
“However, Parliament will need to go through the parliamentary process to approve that full amount. ASIC can only levy up to the subsector cap. Regardless of the amount that we will put to Treasury and to the minister early next year, the levy that ASIC can issue will only be up to the $20 million cap.”
However, the CSLR can’t inform the minister a special levy will be required until the start of the relevant financial year, meaning Berry will have to wait for 1 July 2025 – the first day of FY26 – before informing the minister.
“He has some things which he can do which are in the legislation – he can ask us to go slow, he can ask us to pay in instalments, he can levy other subsectors – anything outside that requires a legislative change,” Berry said.
“The challenge with that is that he needs to make a decision but there’s no time limit for how long he needs to make that.”
Berry confirmed he will inform the minister on 1 July that a special levy will be needed, but the process could take up to another nine months before the special levy is confirmed by ASIC.
Rising costs of Dixon
The blowouts to the CSLR have been largely driven by the collapse of Dixon Advisory, with over 3000 complaints expected to be headed to the scheme for remediation.
The current cost for the FY25 levy is a collective $18.5 million for – or $1186 per adviser.
“The levy for this year will be a set amount but don’t think that’s the end of it,” Berry said.
“We’re following a fairly large chunk of work, and we would have to expect the levies for the next couple of years are going to exceed that $20 million subsector cap.”
The panel session comes as Treasury begins to make submissions to the Dixon Advisory inquiry public.
ASIC’s submission to the inquiry said it had received 28 reports of misconduct related to Dixon between May 2005 and July 2019, with seven of those related the US Masters Residential Property Fund (URF), owned by Dixon.
“At that time, we received an average of over 11,500 reports of misconduct each financial year,” the regulator said.
The first of the reports related to the URF was on 25 November 2014 and was related to clients receiving inappropriate or conflicted advice, with the regulator commencing surveillance on 27 January 2015.
ASIC sent Dixon two infringement notices in 2015 for $10,200 each over concerns their website included potentially misleading statements about the costs and performance of SMSFs.
Brokers hit back
While Berry expects to tell the minister at the start of FY26 the scheme will require a special levy, those in the financial advice, including the Financial Advice Association have recommended utilising other sub-sectors to help cover the difference.
However, in their submission to the Dixon inquiry, the Mortgage and Finance Association of Australia fought back against any application of the other subsectors to help cover the special levy.
The MFAA argued it would be unfair for other sub-sectors to fund claims in a different industry.
“Placing a disproportionate financial burden on a sector with minimal claim activity not only challenges the principles of equitable treatment but also risks creating incentives that allow higher-risk sectors to rely on cross-subsidisation rather than addressing risk exposures within that sub-sector,” the MFAA submission said.
The Australian Banking Association, whose members include those who covered the initial pre-CSLR levy made a similar argument against further paying into the levy.
“Any application of ministerial discretion must not exacerbate further cross subsidisation by creating a precedent which does not encourage sub sectors who have created losses (paid for by other sub sectors) to uplift their own standards and reduce/prevent future harm to Australian consumers,” the ABA submission said.
*Conexus Financial is the publisher of Professional Planner.
