“If the levy is spread as broadly as possible, it is likely to be more sustainable and pose less risk of threatening the viability of any one sector.”

She warned that most advice firms were small, privately owned businesses with little ability to absorb further regulatory costs.

“It’s not appropriate to ask financial advisers to pay more than the sector cap,” Abood said.

“The $20 million sector cap is already very high, particularly when you bear in mind that the vast majority of this levy is paid by small, privately owned firms with very limited capacity to absorb extra costs.”

The CSLR was legislated in 2023 to compensate victims of financial misconduct up to $150,000, but escalating claims from collapses such as Dixon Advisory, United Global Capital, Brite Advisory, Shield and First Guardian have blown out costs far beyond original projections.

Abood said the current structure unfairly forces advisers to carry the brunt of failures that often originate in product design, management or oversight.

By failing to provide a mechanism to allocate these losses more fairly, she warned, the CSLR is at risk of becoming “unsustainable and ultimately collapsing”.

The CEO also rejected suggestions that sectors deemed “most culpable” should be targeted for the excess levy, arguing this would be impractical and destabilising.

“Those paying the levies are already not those responsible for causing the losses,” Abood said.

“This approach would also not be repeatable, as each year the minister would need to determine the sectors responsible for the future CSLR claims expected, as well as their capacity to pay – without a court case or other proceeding for guidance.

“Finally, this approach would not give any sector any certainty or ability to plan for future costs.”

Delaying compensation until cumulative caps are reached was also ruled out by the CEO.

“It could take many years for consumers to receive compensation using this approach, people who are, in many cases, elderly and have often already been waiting years for restitution. It is unfair and inappropriate to ask consumers to wait even longer for desperately needed funds,” she said.

Abood also on Tuesday reiterated calls on the government to reinstate the dumped Senate inquiry into wealth management companies and broaden its scope to include Shield and First Guardian.

“Deciding what to do with the special levy does not fix the fundamental flaws in the funding model of the CSLR,” she said.

“As the Shield and First Guardian scandals show, failings in the financial sector often incorporate a range of players, including responsible entities, investment managers, research houses, superannuation funds, platforms, advice licensees, advisers and auditors.

“These failures are complex and must be fully investigated to ensure we understand what went wrong – and how to stop them occurring in the future.”

Abood added that until the CSLR’s funding model was fixed, the very future of professional financial advice was at stake.

“Consumers are entitled to feel safe when engaging with regulated financial services, and every sector in financial services benefits from consumers having confidence in the system. It is thus appropriate that all contribute to consumer compensation when one sector has reached its capacity.”

‘Temporary band-aid’

The Stockbrokers and Investment Advisers Association also stated in its submission that any solution arising from the consultation that only deals with the current cost blow-out is merely a “temporary band-aid”.

Like the FAAA, the SIAA stated the CSLR is not sustainable in its current form and must be fundamentally re-designed and that it was “built on the shaky foundations of moral hazard”

“The scheme currently punishes firms who are well-resourced and have invested in their systems, processes, training and secured appropriate PI insurance cover by requiring them to pay for the misconduct of those bad actors who have failed to do so,” the SIAA submission read.

“The shortcomings of its various components are obvious now that the scheme is in operation. The government’s reneging on its promise to fund the scheme’s establishment and costs for the first year has exacerbated the negative consequences of the design of the scheme.”

Furthermore, the SIAA said the most appropriate option for dealing with the FY26 levy blow-out is to impose a special levy on a large number of sub-sectors under the ASIC Industry Funding Model that spreads the cost burden as widely as possible.

However, it said while imposing a special levy on all retail-facing subsectors to pay for the FY26 levy blow-out is the least worst of the five options, any apportionment must be based on several factors, including that the government pay an amount that accords with the remaining nine months of the first year of the operation of the scheme.

“This reflects the original version of the scheme that was presented to industry. It also serves as a proxy for the failure of the regulator to deal with the Dixon Advisory and UGC matters in a more timely fashion,” the submission added.

The SIAA also called for the personal financial adviser sub-sector to be excised from the levy to account for the fact that the entities in this sub-sector are already required to pay a $20 million levy.

“Many licensees in this sub-sector will also be impacted by a special levy imposed on all retail-facing sub-sectors as they fall within other sub-sectors such as corporate advisers, securities dealers and managed discretionary account providers,” it stated.

“This will result in these licensees being required to pay a special levy in addition to the personal financial advice sub-sector levy. Responsible entities should be required to pay a substantial portion of the special levy to reflect the fact that failure of managed investment schemes is a key driver of the FY26 levy blow-out.”

Finally, the SIAA called on the CSLR to be redesigned to ensure that special levies in the future result from a “black swan” event rather than business as usual.

“The imposition of a special levy should not be something that happens year after year.”