The CSLR’s black swan dive: FAAA warns further $100m hit could be on the way

The impact of Dixon Advisory and United Global Capital (UGC) on the financial advice sub-sector through the Compensation Scheme of Last Resort (CSLR) is, at this point, well understood.

In the cases of UGC and Dixon, they were vertically integrated groups that had their own advisers putting client investments into related parties.

While the collapse of the funds is where the failure stemmed in both cases, the advice being provided under the firms’ own AFSLs provided a clear avenue for insolvency and the bill being passed onto the broader profession through the CSLR.

It’s an unfair burden on advisers, but it previously seemed as though it would be one limited (though even “limited” it poses a serious threat to the sustainability of the profession) to these vertically integrated models.

However, that no longer seems to be the case.

In a new paper, Financial Advice Association Australia (FAAA) general manager policy, advocacy and standards, Phil Anderson has pointed to the CSLR’s May announcement that there would be an underspend of the 2024-25 CSLR levy as containing a concerning detail.

According to CSLR chief executive David Berry in the release, the scheme has seen multiple large-scale firm failures within the personal financial advice sector beyond the Dixon Advisory collapse, with at least two of these failures potentially leading to more than 800 claims.

“These failures continue to significantly impact the amount of compensation likely to be paid in the coming financial years. The key driver to the timing of payments remains the speed at which the CSLR receives claims,” Berry said.

Doing some quick maths based on previously released average claim values for Dixon and UGC of around or above $120,000, Anderson said this could “easily mean $100 million or more”.

“The financial advice profession has already been stung very hard by the CSLR exposure to Dixon Advisory and UGC, and many advisers are concerned about when and where the next major event will come from,” he said.

“It appears that there are two new matters that they should be rightly concerned about. These two matters, which have achieved a lot of media coverage in the last six to 12 months, are Shield Master Fund and First Guardian Master Fund.

“There are striking similarities between these two new matters, both involving the collapse of investment funds that appear to have been invested in property development, property loans and other business loans.”

ifa had flagged in September 2024 that the turmoil surrounding the Shield Master Fund – a registered managed fund promoted by Keystone Asset Management – could spell trouble for advisers.

At the time, Anderson told ifa that the likelihood of massive fallout for advisers was minimal, as isolated instances were easier to contain than integrated failures.

“If individual advisers who are operating as individuals, then it is less likely, if there’s appropriate controls in place, that we see something that is a black swan-type matter like we’re seeing with Dixon Advisory,” he said last year.

Largely, this is because the losses would need to be large enough that it would push an unaligned licensee into insolvency.

As the scale of advice client exposure to both Shield and First Guardian have come to light, that now looks like it could happen.

The Venture Egg problem

Just last week, ASIC cancelled Financial Services Group Australia’s (FSGA) AFSL and permanently banned responsible manager (RM) Graham Holmes.

Ferras Merhi, who himself shows as ceased on the Financial Advisers Register as of 31 May, was the sole director of FSGA from 10 February 2021 to 30 May 2025.

Despite being the sole director of FSGA, Merhi and his advice firm Venture Egg Financial Services were both authorised representatives of InterPrac Financial Planning until the end of last month.

In April, Garry Crole, managing director of InterPrac’s parent company Sequoia, told ifa that the firm is working with ASIC as it investigates Merhi and Venture Egg.

While there is no suggestion at this point that the InterPrac’s exposure will see it shut down, according to Merhi’s previous media comments, Venture Egg has about 5,000 clients with $250 million in Shield, and 3,600 clients with $192 million invested in First Guardian.

Even for a large licensee like InterPrac, compensation related to $442 million of client money in collapsed funds would be tough to cover.

“This raises a question as to why the collapse of two investment funds has a direct impact on the CSLR exposure of the financial advice profession,” Anderson said.

“Firstly, it shouldn’t, unless the provision of personal financial product advice to retail clients is involved, and unless the likely successful AFCA claims are large enough to bring down one or more of the licensees who were involved. If numerous licensees were involved and none were overly exposed, then this is less likely to be a material factor impacting the CSLR.”

Importantly, he noted, there is no clear understanding of exactly how large the losses in either Shield or First Guardian will be. All that is certain is that they have the potential to be “substantial”.

“Seemingly, many of the clients have ended up with a large percentage of their portfolio invested in either one or both of these funds,” Anderson explained.

“Neither do we know the extent of the exposure of each of the licensees to each of these funds.”

He added: “We will need to carefully monitor the progress of the Shield and First Guardian matters to understand the likely impact on the CSLR, however the warning sirens are certainly going off.”