The revised FY27 Compensation Scheme of Last Resort levy estimate has fallen short of the $250 million worst-case scenario but has increased by $60.7 million from the initial estimate presented, as industry lobbyists call on the government to fix the funding mechanism supporting the scheme.
The total revised estimate, released by the CSLR on Thursday, is $198.1 million, dominated by $190.3 million which is allocated to the financial advice subsector.
The total initial estimate for the FY27 CSLR levy, flagged in early 2025, was $137.5 million, including $126.9 million solely for financial advice.
The CSLR has a total annual cap of $250 million, which earlier estimates suggested could have been reached if Shield and First Guardian claims progressed fast enough.
The scheme noted that claims from InterPrac Financial Planning won’t progress to the CSLR as it is the only currently solvent licensee implicated in the Shield and First Guardian collapse.
However, if InterPrac becomes insolvent – a proposition the regulator has been keeping a close eye on – another $100 million could be added, based on claims that have already progressed through AFCA.
InterPrac is suing AFCA over concerns about its jurisdictional coverage, which is unable to apportion blame to managed investment schemes, and has dragged First Guardian investor and advocate for fellow victims Melinda Kee into the court action. AFCA has since paused work on determinations related to InterPrac.
Each subsector has a $20 million levy cap; any excess requires a special levy to cover the rest of the funding.
The government is required by law to collect a special levy after the FY26 financial advice levy hit $67 million, and added a second levy to financial advisers, as well as the APRA-regulated superannuation sector, to cover the $47 million shortfall.
The government made clear the FY26 special levy wouldn’t set a precedent and is currently consulting on changes to the scheme, including a permanent provision for special levy funding.
The CSLR said the latest report is based on the current legislative framework and doesn’t consider any potential changes from the government consultation which includes a proposal to exclude missed investment gains from the CSLR.
Comparison of initial and revised estimates for the FY27 levy period ($000)
The report highlighted the changes in the estimate, which included a reduced calculation for Brite Advisors which fell due to an 85 cent to the dollar interim liquidator distribution which reduced average claim sizes.
Changes in estimate for financial advice subsector
The CSLR can only make compensation payments once levies are collected and the scheme expects the excess $170.3 million won’t be collected until June 2027 or possibly after.
CSLR chief executive David Berry flagged at the Professional Planner Licensee Summit last month that the remaining Dixon Advisory complaints would be settled in FY27.
Dixon Advisory was the first black swan event to hit the scheme after its parent company Evans and Partners placed the subsidiary into voluntary administration in early 2022 before the scheme commenced in April 2024.
Some 589 CSLR claims for Dixon Advisory – 203 more than the initial estimate – are expected to be paid in FY27. However, 10 further claims are expected to be paid by the CSLR after 30 June 2027, due to determinations being issued towards the end of the FY27 levy period, meaning payment will happen in the FY28 levy.
Shield and First Guardian
AFCA has received 3429 complaints related to Shield and First Guardian, lead ombudsman for advice Shail Singh told the Licensee Summit last month.
The revised estimate report said more than 1200 of those claims are against InterPrac.
The average amount invested into Shield was $83,000 by 5800 investors for a total of $480 million. Individual claims that can be made to the scheme are capped at $150,000.
Macquarie has remediated investors for a total of $321 million – returning them to their starting capital position – but they are still entitled to make an AFCA claim against the advice licensee, which could entitle them to be compensated for investment losses they missed out on because of advice to switch funds.
The CSLR estimated that a 7 per cent a year return over a period of five years could lead to $350 million of missed investment gains being compensated through the CSLR, assuming the government doesn’t reform this provision in the law governing the scheme. This includes $129.2 million for Macquarie members despite them already being remediated for their initial investment.
About $159 million invested in the schemes hosted by Equity Trustees could still flow through to the CSLR if InterPrac becomes insolvent, the government declines a bailout of the trustees (which only Diversa has applied for) or the court rules that the trustees should pay remediation.
The average amount invested into First Guardian was $74,000 by 6000 investors for a total of $446 million.
Netwealth has repaid $100 million to investors, leaving $346 million leftover to pay by Diversa Trustees and Equity Trustees.
Using the same calculations on missed investment gains, another $40.3 million in compensation for investment losses could be repaid to claimants, but that only makes a portion of the $525.5 million in missed investment gains that would be paid out by all trustees that onboarded First Guardian.
Calls for new funding streams
Financial Advice Association Australia head of policy Phil Anderson said the government should limit the cost of the levy for the financial advice sector to the $20 million subsector cap, noting the diminishing number in the profession.
The latest figures from Padua Wealth Data show the number of advisers on the ASIC Financial Advisers Register has fallen to 14,984, although there is usually a dip around the change of financial year, and the researcher predicts the overwhelming majority of recent departures will re-surface at a different licensee, which has a 30-day window to report new appointments.
“We support the principle of compensation and accountability where misconduct occurs,” Anderson said.
“However, a fair scheme must not undermine the ongoing viability of the advice profession at a time when more Australians than ever are seeking professional advice to help navigate life’s hurdles, including recent major Budget tax changes as well as aged care and NDIS changes.”
Stockbrokers and Investment Advisers Association CEO Maria Lykouras said the CSLR needed to be “fundamentally re-designed”, particularly as AFCA fees exceed the advice subsector cap.
“The revised estimate highlights the unsustainability of the compensation scheme,” Lykouras said. “Now that the scheme is in its third year of operation, its shortcomings are obvious.”
The SMSF Association called on the government to urgently address the “gross inequities” in the CSLR funding model thrust upon financial advisers and called on the government to fill funding shortfalls.
“Consumers should have access to financial compensation where they suffer financial loss from poor or negligent financial advice or product failure,” SMSF Association CEO Peter Burgess said.
“But holding a sector accountable for the failures of firms that intentionally prioritise profit to the detriment of their clients is both unsustainable and unjust.”
However, Super Consumers Australia director of policy Jessica Spence said the levy increase will be “seized on by some in the financial services sector” to argue that consumers should receive less compensation.
“People who have lost their retirement savings because of financial misconduct should not be punished to make the levy cheaper for financial firms,” Spence said.
“The solution is not to pay innocent investors less. The answer is to stop this harm from happening in the first place.”
Industry fund lobby Super Members Council called for ruling out APRA-regulated funds from the special levy and included managed investment schemes instead.
“A tsunami of unpaid compensation orders is now flooding the scheme,” CEO Misha Schubert said.
“This highlights the absolute urgency of the need for stronger laws to protect consumers from these types of devastating harms in the first place, and an equally urgent need to enable super funds to deliver more safe, trusted financial advice to their own members.”
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