$70m CSLR levy could ‘bankrupt financial advisers’: FAAA

On Friday morning, the Compensation Scheme of Last Resort (CSLR) announced that the estimated levy for 2025–26 had skyrocketed to $78 million, with advisers alone facing a $70 million bill as a result of determinations against collapsed firms United Global Capital (UGC) and Dixon Advisory.

In a statement, Financial Advice Association Australia (FAAA) CEO Sarah Abood said the association was “shocked” to see the figure.

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“We have also been told that the numbers could be even higher for the 2026–27 financial year,” Abood said.

“There is currently a sector cap of $20 million per year. Even at that level, the cost per adviser will exceed $1,250. A special levy will be required to fund the remainder of the bill, and we do not yet have any indication as to who will pay this.

“This is an eye-watering figure in only the second year of operation for the CSLR and is substantially in excess of previous estimates.”

The decision on how the $50 million that is above the sector cap will be paid has not yet been announced and cannot officially be made until after 1 July – after the federal election.

Ultimately, all that is for certain is that current Financial Services Minister Stephen Jones will not be the one making the final decision following his retirement announcement on Thursday.

Instead, it will either fall to whoever takes over from Jones if Labor wins the election or current shadow financial services minister Luke Howarth if the Coalition forms government.

However, Abood has urged the government to tell the advice community how it intends to act.

“I am calling on Minister Jones and Treasurer [Jim] Chalmers to immediately declare their intentions for what will happen to the $50 million of costs that are above the sector cap,” she said.

“It must not be the blameless small business financial advice profession that pays this huge bill, when the people who caused this problem are walking away virtually unscathed.”

Speaking with ifa, Phil Anderson, FAAA general manager policy, advocacy and standards, similarly put the onus on the Treasurer.

“If there was a continuation of the current government, then we assume that the one consistent link would be Jim Chalmers, the Treasurer. He is, in effect, Stephen Jones’ boss,” Anderson said.

“He’s responsible for the overall portfolio that includes the responsibilities that sit with Stephen Jones. He’s the common link. He’s been the Treasurer from the last election. This all sits in in his domain. He’s got to be the critical person in making sure that we get a solution.”

While the government’s approach remains uncertain, Anderson was adamant that advisers should not bear the cost of the additional $50 million.

“The government has a range of options. They could even consider making a contribution themselves, but otherwise, we would call on them to share that levy more broadly around other sectors,” he said.

“In support of that call, we’d make the point very, very strongly: both Dixon Advisory and UGC are deep down product issues. They are situations where advice is being used as a vehicle to sell in-house product that has ultimately failed. I don’t think that small business financial advisers who do not provide product should be caught out having to pay for product failures.”

Anderson noted that until Friday’s announcement, the full extent of losses through UGC was not widely understood.

While Dixon has been on the radar for years at this point, UGC claims accounts for $44.57 million, or around 70 per cent, of the FY25–26 levy. Dixon makes up the comparatively low amount of $12.25 million.

“This is the first message that we have got about the scale of the losses,” Anderson said.

“We were obviously aware of the UGC matter and the circumstances behind that, we knew there was a problem with the Global Capital Property Fund, but we just didn’t know what sort of dollar losses might be possible. This has obviously made that a front and centre issue.”

Abood added that the impact of a $70 million bill on advisers, which would amount to in excess of $4,500 per adviser, would be devastating to the profession.

“If the government’s intention is to bankrupt financial advisers in every town and every suburb and rapidly increase the already-high cost of advice, this is an easy way to do it,” she said.

“The government surely must now see that the writing is on the wall and that it must fix CSLR immediately.”

Reaction from the broader industry

Beyond the FAAA, other industry associations also condemned the massive blowout in expected compensation claims.

SMSF Association CEO Peter Burgess said it is “unacceptable” that advisers are expected to cover the cost for failures of firms such as Dixon and UGC.

“We support having the CSLR but it’s important there is confidence that the scheme is meeting its objectives in a way that is sustainable for the industry and consumers,” Burgess said.

“The current funding model is clearly unstainable and inequitable, posing a risk to the viability of the advice sector and the CSLR.

“At a time when we are striving to make financial advice more accessible and affordable, the sector is being burdened with a CSLR scheme that punishes ethical advisers for the sins of a tiny minority.”

Burgess noted that “inappropriate SMSF advice” featured prominently in the Dixon Advisory Superannuation Services and UGC implosions.

“This again underlines the importance of specialist SMSF advice. We have always maintained that personal SMSF advice should only be provided by a licensed SMSF specialist. Although this won’t eliminate poor advice behaviour, it will significantly reduce it,” he said.

Financial Services Council (FSC) CEO Blake Briggs added that the amount attributable to financial advice going so far beyond the sector cap means the scheme is working against bipartisan efforts to reduce the cost of providing financial advice to consumers.

He also reiterated the FSC’s position that only capital losses should be covered through the CSLR, rather than compensating clients who experienced capital gains that should have been higher “but for” the advice they received.

“It does not align with community expectations that 80 per cent of the compensation being paid by the scheme has been for foregone, hypothetical capital gains, not the actual losses a consumer has incurred,” Briggs said.

Stockbrokers and Investment Advisers Association CEO Judith Fox also pushed for urgent action on the CSLR.

“The annual levy cap for the financial advice sector is $20 million. Today’s report released by the scheme shows that the proposed levy for the sector will total $70 million,” Fox said.

“For the cap to be exceeded by such a large amount means that the current scheme is not working as intended and change is urgently needed.”

Minister Jones announced that the Albanese government is directing the Treasury to undertake a comprehensive review of the CSLR.

“This is all about ensuring the scheme remains sustainable into the future for consumers and for the industry,” the minister said.

While stressing his focus on consumers, Jones said Australians also need access to affordable high-quality financial advice, and as such the review will assess whether the scheme is meeting its objective in a way that is “sustainable for both companies and consumers”.

“Ensuring the scheme is sustainably funded will be an important focus of the review,” Jones said.