Advisers will get some relief from the Compensation Scheme of Last Resort as unallocated compensation money from FY25 will be carried forward into a future levy period.
CSLR chief executive David Berry tells Professional Planner the scheme will not be looking to use the full $18.5 million originally collected for the advice subsector levy as not all claims could be finalised during the current financial year.
“We haven’t been able to pay the compensation payments that make up that $18 million that we thought we would, back when the estimate was done in December 2023.”
The original claim volume estimation in December 2023 will be reached eventually, but many claims have taken much longer than anticipated to be processed by the Australian Financial Complaints Authority and reach the CSLR.
“The claims are still there, but they’re still in complaint mode with AFCA, so it’s just taking longer for the claims to come through to us,” Berry says.
Asked why the claims haven taken longer than anticipated to reach the CSLR, AFCA declined to comment saying it was a matter for the scheme.
Berry will further discuss the progress and nuances of the CSLR at the upcoming Professional Planner Licensee Summit in the NSW Blue Mountains on 23-24 June.
There are at least two more failures potentially leading to more than 800 claims, but Berry declined to name the firms at this stage.
The excess credit from the underspend in FY25 will be carried forward to pay compensation in subsequent financial years and be offset against the FY27 levy estimate.
Berry says the CSLR’s exact amount of underspend of FY25 levy funds will not be known until August after an audit is completed.
Therefore, it will not be included in the revised levy estimate for FY26, which will be released at the beginning of the next financial year.
“We’ll be able to include it in the FY27 levy, but we won’t be able to include it in the revised estimate,” Berry says.
A media release distributed on Tuesday morning also mentions the slower claim volumes have resulted in lower operating costs for the CSLR.
“Less claims, less expense. Simple as.” Berry says.
Levy estimate bombshells
In October 2024, the CSLR foreshadowed the levy for FY26 would be far more than the $20 million subsector cap, prior to the announcement of the levy estimate.
At the beginning of the year, the CSLR’s actuarial services provider Finity Consulting announced an initial levy estimate of $77.78 million for FY26, with $70.11 million on the shoulders of the advice sector.
As the amount is more than $50 million over the subsector cap, a special levy will be required to raise the funding.
This prompted a Treasury review into the scheme to “improve understanding of the scheme’s operation and the outcomes it is delivering”.
In February this year, Berry said they predicted the CSLR FY27 levy estimate to be over $120 million in the advice sector, vastly exceeding the estimated FY26 levy.
The new minister for financial services minister Daniel Mulino will have to decide how to navigate fixing the scheme, as the current model is unsustainable in the long term with the levy estimates as they are.
‘But for’ what
AFCA’s controversial ‘but for’ methodology, which considers whether a claimant would have been in a better financial position had they received appropriate advice, has been criticised by much of the industry for rewarding claimants who had not suffered a capital loss.
The ‘but for’ complaints make up a large number of the complaints that reach the CSLR and therefore cause the excess costs to increase dramatically.
AFCA defended its ‘but for’ methodology last year with lead ombudsman Shail Singh saying it was a legal requirement to compensate claimants if the adviser has breached the best interest duty.
Previous minister Stephen Jones told the Professional Planner Advice Policy Summit the ‘but for’ provision would be addressed in the review, but retired before any change was made to the scheme.
CSLR chief executive David Berry will be speaking at the Professional Planner Licensee Summit on 23-24 June in the NSW Blue Mountains.
