Several associations have called for the Compensation Scheme of Last Resort to be overhauled amid another annual cost blowout, but the peak body for super funds has pushed back on its members covering the scheme.
The CSLR confirmed the initial estimate for the FY27 levy would surpass $126.9 million, but added the further caveat that early Shield and First Guardian AFCA determinations could add another $125 million, effectively doubling the cost.
This means another special levy will be required to cover the shortfall as it exceeds the $20 million subsector cap and the government is yet to announce how the special levy for FY26 will be funded.
Financial Advice Association Australia chief executive Sarah Abood said fixing the CSLR remains a core advocacy priority for the association.
“We support the scheme and its importance to consumers, while continuing to call out fundamental flaws in the funding model, that are not only unjust, but also risk its ongoing survival,” Abood told the association’s national congress in Perth on Tuesday morning.
“The CSLR has become a millstone around all our necks. If costs continue to escalate, it could accelerate adviser departures, raising costs still higher for those remaining – a negative spiral that further increases the cost of advice for consumers and starts to risk the sustainability of this profession.”
The Australian Financial Review reported that Minister for Financial Services Daniel Mulino was considering applying the special levy across the $4.3 trillion super sector.
Association of Superannuation Funds of Australia chief executive Mary Delahunty told the AFR that the association was opposed to super funds covering any levy, arguing it would erode the retirement savings of members and conflict with the legislated purpose of superannuation.
ASFA confirmed with Professional Planner that the association supports a sustainable CSLR that “focuses on sectors with significant evidence of uncompensated losses”.
“The scheme should be funded by the sectors where these losses have actually arisen, rather than demanding cross-subsidy from other sectors,” Delahunty said.
“Uncompensated losses are not an issue in the APRA-regulated super fund sector, which is tightly regulated and already has its own sector-funded statutory compensation arrangements.
“Super funds already contribute to the CSLR in a limited way, where they provide personal financial advice under their own licence, which is appropriate.”
However, the FAAA has argued that advisers who had nothing to do with the losses are already covering the costs of sustaining the system.
“It’s unjust and unsustainable that any business should be called upon to compensate consumers they didn’t harm, to such an extent that it threatens their viability,” Abood said.
“It is absolutely crazy to drive good and compliant businesses out of a sector by forcing them to compensate the clients of the bad and non-compliant businesses.”
SMSF Association CEO Peter Burgess said the levy demonstrates the disproportionate cost borne by the financial advice profession.
“We support the principle of a last-resort compensation scheme, but it is unfair and unsustainable to expect the financial advice profession alone to pick up the cost of failed advice and products.”
The Financial Services Council said it opposes normalising the use of special levies as a routine funding mechanism as they are “inherently unpredictable, undermine industry confidence, and function as a de-facto tax on business”.
“The FSC recognises the CSLR plays an important role supporting and protecting Australians who experience serious financial hardship as a result of financial advice failures, however the scheme must be reformed to ensure it remains genuinely ‘last resort’ and targeted towards those most in need,” CEO Blake Briggs said.
“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.”
