Amid several major failures, including Dixon Advisory, United Global Capital (UGC), First Guardian, Shield Mast Fund, and Brite Advisory, financial advisers are now facing an estimated $67.3 million levy for FY2025–26, blowing past the $20 million subsector cap.
While Treasury has since kicked off a special levy consultation at the direction of Financial Services Minister Daniel Mulino to explore options for funding the excess $47.29 million, David Berry, the inaugural chief executive of the Compensation Scheme of Last Resort (CSLR), suggested several changes that could help circumvent repeated blowouts.
Namely, Berry said the CSLR is advocating for “a cap for major and massive firm failures”.
“We think that $150,000 [cap] is reasonable but we also think that the minister should have some level of discretion where there are large failures with multimillions, tens of millions, hundreds of millions of dollars’ worth of losses,” Berry said on an episode of The ifa Show.
Although he acknowledged that Parliament was unlikely to approve such measures, Berry said granting the minister this power would “make dealing with significantly large firm failures a little easier”.
This suggestion follows the increased occurrence of so-called “Black Swan” events, which Berry explained are only meant to occur once every 20 years. However, in light of what the industry has seen over the last 18 months, he said: “I think we’re dealing with ‘White Swans’ now.
With this in mind, Berry said the CSLR has listed four key priorities in its yet-to-be-released submission to the post-implementation review of the scheme, including:
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Ensure the scheme remains sustainable.
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Support victims of financial misconduct.
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Address challenges and shortcomings of the current funding process.
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Improve industry practices.
Expanding on concerns regarding sustainability, Berry explained that the CSLR actuaries found the number of complaints flowing in is above what should be expected across all levels of complaints.
“It’s fair to say we’re seeing far more firm failures than we were expecting to see and all of these were based on conduct before the CSLR even existed and they’re going to have a long tail. They’re going to be around for a long time,” he said.
With the profession facing repeated levy blowouts, Berry said the CSLR’s proposal to improve the scheme’s sustainability is to limit compensation to capital losses only.
This would remove the highly contentious “but for”’ claims, under which claimants are compensated for funds the Australian Financial Complaints Authority determines they would have received if they had been given appropriate financial advice.
“As a scheme of last resort, we also recognise we have limitations as to what we can pay in compensation. You know, $150,000 is an example of that. We think that there should be a recommendation that we’re paying compensation up to $150,000 for capital loss only,” Berry said.
To hear more from David Berry, tune in here.
