The worst is yet to come for the Compensation Scheme of Last Resort for advisers, with the head of the scheme expecting the FY27 levy to surpass the $70 million due to cover advice remediation in FY26.
CSLR chief executive David Berry told the Professional Planner Advice Policy Summit current estimations are that the FY27 levy will likely exceed $120 million in the financial advice sector.
“Whilst the levy for this coming financial year is large, the one coming is larger,” Berry said.
“We’ve made this clear to the minister’s office a number of times, we’ve certainly plead the case for change.”
Minister for Financial Services Stephen Jones had announced the review into the CSLR after the scheme was tabled to Parliament the FY26 levy earlier this month. Although shadow Minister for Financial Services Luke Howarth has supported changes to the scheme while addressing the summit during dinner on Monday night, he criticised the minister’s action as being “too little, too late”.
The full compensation to be covered is estimated to be $77.78 million, with $70.11 million dedicated to the financial advice subsector.
The minister spoke at the summit yesterday, strongly hinting the review will target the controversial “but for” provision in AFCA determinations that allows claimants to receive compensation if they didn’t receive a capital loss, but have been deemed they would’ve been in a better financial position if they had received appropriate advice.
Jones told the summit the scheme was “not about guaranteeing investment returns” but making sure “genuine victims” have access to redress.
“[The CSLR] is an important part of the financial system for advisers, because it gives Australians confidence that there is a backstop in situations of genuine last resort,” Jones said.
Reflecting on the minister’s comments from the previous day, Berry said he welcomed language that would suggest the scheme is not sustainable based on the current legislation.
“I see is a positive for the scheme and a positive for those people who have been disadvantaged,” Berry said.
Berry said the scheme will include feedback in their submission to the Treasury review about how exempting “but for” determinations would make the CSLR more sustainable, adding about 80 per cent of claims are based on this provision.
“It’s important to draw a distinction between the ‘but for’ and the compensation scheme amount,” Berry said.
“These people have experienced loss and AFCA determines that loss. At the moment we pay compensation up to the $150,000 limit but we don’t distinguish between what that loss might be or might now, it’s just based on that amount.
“I don’t think there’s a need for AFCA to change their approach, but there is an opportunity for the scheme to pay out on just the capital component on the loss.”
In the FY26 levy, the scheme is expected to pay out 101 cases related to Dixon Advisory and 307 for United Global Capital.
“Those two are the two major ones which will dominate the next two years,” Berry said.
“Based on the number of Dixon cases we’re expecting to see and the average size, yes it’s well above $120 million just in compensation.”
Asked about the fairness of the scheme handling retrospective cases, Berry said it was ultimately decided by the legislation. “That was approved by both sides of parliament,” Berry said.
From 1 July, the CSLR will notify the minister on the need of a special levy, after a revised estimate is completed.
The minister could ask the scheme to slow down compensation payments, pay in instalments, or levy other subsectors – not just the other three subsectors in the CSLR levy, but any of the 50-plus subsectors regulated by ASIC.
Probably time to leave the industry; this is going to become a $10,000 p/a tax from the government, on top of their $5,000 ASIC tax.
CSLR should never have been supported by the FPA.