On Friday, the Compensation Scheme of Last Resort revised down its estimate for the 2025–26 financial year to $67.3 million.
Compiled in conjunction with the CSLR’s principal actuary, the revised estimate for the 2026 financial year is now calculated at $75.7 million, down from the initial estimate published in January of $77.98 million.
According to the CSLR announcement, the need for a revised estimate was triggered due to the initial levy estimate, exceeding the $20 million cap for the personal financial advice sub-sector.
However, Peter Burgess, chief executive of the SMSF Association, said the sector cap combined with the revised recommended special levy of $47.3 million was simply “too high” for the sector to sustain.
“While the revised estimate is slightly lower than the initial estimate of $70.1 million, we are bitterly disappointed with the quantum of the levy amount that punishes the vast majority of advisers who act in the best interests of their clients,” he said.
“The CSLR CEO David Berry explicitly acknowledged this when announcing the levy, saying ‘the harm caused by those in the finance sector doing the wrong thing disproportionately impacts and detracts from those acting correctly’.”
Burgess continued that having the CSLR is an important initiative to build confidence in the financial advice industry.
“But its current funding model is unsustainable and inequitable, posing a risk to the viability of the advice sector and the CSLR.”
“We urge the government to expedite the review of the CSLR that it commissioned back in January. When the review was announced, the government stated that ensuring the scheme is sustainably funded would be an important focus.”
The SMSFA also lamented the occurrence of large-scale advice model failures leading to the ever-increasing CSLR costs for compensation claims.
“It’s not just the scheme itself that needs to be reviewed, it’s what is being done ‘up-stream’ by the regulator to detect and act on early signs of advice failures, that also needs to be reviewed,” Burgess said.
“By the time the claims reach the CLSR it is usually too late to avoid or mitigate the cost of compensation.”
Sarah Abood, chief executive of the Financial Advice Association Australia, appealed to the government to make urgent and significant changes to the CSLR to ensure fairness and sustainability.
“In the face of the further deterioration in the long-term outlook for the CSLR, it is increasingly critical that the government steps in to fix this problem,” Abood said.
“We are keen to see the release of the Treasury report into the CSLR and the government’s response. The problems will rapidly get substantially worse if urgent action is not taken, putting the ongoing existence of the scheme at risk.”
Abood added that the reduction of $2.8 million in the total estimated CSLR cost for the financial advice sector for 2025–26, from $70.1 million to $67.3 million, was due to a delay in the processing of known complaints, not a reduction in expected claims.
“Effectively this will push a significant additional cost into the 2026-27 year,” she said.
“Some of the key developments since the January 2025 initial estimate are an increase in complaints, of 350, for UGC (many of which will not be processed until 2026-27), and the increasing prominence of Brite Advisors, where the revised estimate includes only 10 claims out of the 618 complaints that AFCA has already received.”
Furthermore, she added, the numbers do not include any allowance for the impact of either Shield or First Guardian, although numerous announcements by ASIC suggest these are very substantial matters where financial advice complaints are likely.
“This paints a picture of multiple years of claims that are substantially above the sector cap. The vast bulk of CSLR claims have been generated by a small number of medium to large firms, and by the collapse of financial products: a sector that currently makes no contribution at all to consumer compensation under the CSLR.”
“In contrast, the vast majority of those paying these levies run excellent compliant small businesses (92 per cent of advisers work in firms with 10 or fewer advisers) who have not done anything wrong.
“The government’s plans in relation to the allocation of costs above the $20 million sector cap are unknown – but clearly the financial advice profession should not and cannot cover this. Urgent action is needed to fix the CSLR funding mechanism, otherwise this will decimate the advice profession, further drive up the cost of advice and put professional financial advice completely out of reach for average Australians.”
