‘Capacity to pay’ the best metric for $47.3m CSLR special levy: Anderson

Earlier this month, Financial Services Minister Daniel Mulino announced that he has asked Treasury to consult on the statutory options available to deal with the Compensation Scheme of Last Resort (CSLR) 2025–26 revised claims, fees and costs estimate.

At the start of July, the CSLR operator released the FY25–26 revised levy estimate, which lowered the amount attributable to the financial advice subsector to $67.3 million.

Along with the announcement, the CSLR notified Minister Mulino of the need for a special levy of $47.29 million.

While the broad range of options available to the minister can be simplified into four options – do nothing, delay the payment of compensation, levy it all on advisers, or spread the cost among more sectors – the final option provides a massive amount of variation.

On a recent episode of The ifa Show, Financial Advice Association Australia (FAAA) general manager of policy, advocacy and standards Phil Anderson said doing nothing or delaying payments are not realistic options.

“It only leaves us two options and one of them is absolutely not possible either, which is that the advice profession, the specific sector that this liability relates, to pays for everything,” Anderson told ifa.

“That is a doomsday concept because when we talk about [FY25-26], we talk about 26-27, we're talking about a very large sum of money, so that's just not viable.”

That just leaves the option of spreading the cost across a broader range of sectors, which Anderson called the “only really genuine option” that Mulino has available.

The real question is what methodology Treasury will use to spread it across those other sectors.

“There is one line of argument about attribution of the special levy on the basis of a culpability or contribution to the losses,” Anderson explained.

Looking at the current financial year, with United Global Capital (UGC) and Dixon Advisory dominating the costs, he said there is a “different layer of complexity” because the Global Capital Property Fund was actually a company rather than a managed investment scheme.

“But if you go back to the URF, that is a managed investment scheme and clearly things went wrong in the URF that ultimately led to client losses. But if we talk about 26-27 and the prospect of significant losses from Shield and First Guardian, I think we've got to look to what were the contributing factors,” Anderson said.

“First of all, you've got the managed investment schemes themselves and yes, there's all sorts of media coverage around fraud, mismanagement, money that was loaned without security, money that disappeared overseas. There's an extensive range of ways that they have lost money.

“And yes, advisers made decisions to recommend these products with the knowledge that they were subject to research and they had been endorsed as investment grade investments and super funds had selected them to include them on their investment menus.

“You've got those two things that have happened before the adviser has even recommended them. So why is it that the advice should take full responsibility for everything that has gone wrong?”

Spreading the cost based on culpability, he added, is “problematic at best”, while simply spreading the cost evenly across sectors would disproportionately impact small subsectors like insurance distributors or MDA operators.

“If they got the same share as responsible entities then that's, that's not a fair attribution,” Anderson said.

He added: “I think we would prefer it was more on the capacity to pay basis and it was as broad as possible so that this is taking in as many sectors as possible, but particularly those that have the greater capacity to pay.”

The way this is calculated in the Treasury consultation paper is through profits – which would put the additional cost to financial advisers at $915,000.

This figure would be in addition to the $20 million paid through the standard subsector levy and compares favourably with other options.

Spread evenly, for instance, the cost to personal financial advice providers would be $2.25 million, based on population would be $7.85 million, and spread by “regulatory effort” would total $11.5 million.

“Spread by population is in my view a meaningless proposition because it assumes that every participant in that population is the same. So, you've got a big bank and you've got a financial adviser, they're not the same. That one doesn't fly,” Anderson argued.

“And look, the other one, spread by regulatory effort just signals how much money ASIC already spends on financial advisers, which is disproportionate to their position in the overall market.

“Maybe it would have been better if more money had have been spent in areas to have avoided this problem in the first place rather than the money being spent where it was.”

To hear more from Phil Anderson, tune in here.