Financial advisers slam CSLR levy increase to $77.9m as disproportionate and unfair

Labor promises review as financial advisers say the controversial CSLR levy for the coming financial year will make it harder to provide advice and even force many out of business.

Financial advisers say the $77.9m CSLR levy for the coming financial year will make the cost of advice more expensive.

Financial advisers have slammed the increase in the Compensation Scheme of Last Resort (CSLR) levy to $77.9m as disproportionate and unfair, saying it will make it hard to attract new people to the industry and hinder the ability to provide affordable advice.

The Albanese government has directed the Treasury Department to undertake a comprehensive review of the CSLR, which it legislated in 2023 to ensure victims of financial misconduct have a sustainable avenue for redress.

CSLR has set an estimated $77.9m levy for the financial services industry in the 2026 financial year to process 1800 claims across the pre-CSLR levy landscape and facilitate the payment of compensation for 491 claims, a threefold increase in processing volume on this year.

It will exceed the $20m levy at sub-sector level that the Australian Securities and Investments Commission (ASIC) can impose, and any amount above this will require funding via a special levy determined by Financial Services Minister Stephen Jones.

According to CPA Australia such a move could see the amount financial advisers pay rise from $1186 this fiscal year to $4516 – an increase of more than 250 per cent in just 12 months.

CPA Australia spokesman Richard Webb said the increase was not only disproportionate and unfair on a sector already under siege but it will create a further disincentive for people to join the already costly financial advice profession.

Financial Advice Association Australia CEO Sarah Abood says the levy jump could get higher in 2027.

“The increased fees incurred by professionals will make the cost of receiving financial advice prohibitive for many ordinary Australians. The cost of providing financial advice is already considerable,” he said.

“At a time of increasing costs and regulatory burden, the rise in the CSLR levy of more than 250 per cent is disproportionate and wholly unfair, driven by the unjust premise that individual professionals in an industry must pay for the costs of failed operators. This is like saying that doctors must pay for the malpractice of their colleagues.”

The scheme, launched last year, allows victims of poor advice and financial misconduct who have been unable to access redress through other avenues due to insolvency, claim up to $150,000 in compensation.

Dixon Advisory was the fourth largest self-managed super fund provider in Australia before it filed for voluntary administration in 2022.

A decision around how to fund the increase in CSLR payments cannot be implemented until July 1. While it was foreshadowed in October that the levy would exceed the cap, CSLR chief executive David Berry has blamed the $57m overrun on the result of a larger volume of claims attributed to Dixon Advisory and United Global Capital.

Of the $77.9m estimate, $70.11m is attributed to financial advice, $2.80m to credit provision services, $2.72m to credit intermediaries and $2.34m to the securities dealing sub-sector.

Financial Advice Association Australia chief executive Sarah Abood said it was an eye-watering figure in only the second year of operation for the CSLR and exceeded previous estimates that had been provided.

“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.

“We have also been told that the numbers could be even higher for the 2027 financial year.”

The FAAA has urged Labor this month to acknowledge the scale of the exposure the financial advice profession faces and undertake an urgently needed review of the CSLR legislation, to ensure the CSLR is fairly and sustainably funded.

Ensuring the scheme is sustainably funded will form part of the review to be undertaken by the Treasury, with it expected to be completed before a final decision is made around levies to fund the projected compensation payments in the new fiscal year.

Financial Services Minister Stephen Jones says it was important to review the CSLR levy that the Albanese government introduced in 2023. Picture: NewsWire / John Appleyard

Labor legislated the CSLR in 2023, after the former government failed to take action despite the scheme being a recommendation of the 2017 Ramsay Review and the Banking Royal Commission.

Mr Jones said the review was about ensuring the scheme remained sustainable into the future for consumers and for the industry.

“While industry has provided broad support for the CSLR, it’s important that there is confidence that the scheme is meeting its objective in a way that is sustainable for both companies and consumers,” he said.

Financial Services Shadow Minister Luke Howarth said the announcement of a review is too little, too late and urgent action is needed to get its costs down now.

“Albanese’s minister promised more affordable advice but the botched rollout of the CSLR has done the opposite. Australians are facing higher costs across the board, including financial advice.”

Financial Services Council CEO Blake Briggs said the review was essential due to the CSLR being unsustainable in its current form with it in the interests of all parties to ensure that it can be sustainable over the long term.

“The review should consider whether the scheme should continue to compensate consumers who have enjoyed significant capital gains, or instead focus on the needs of consumers who have incurred a loss,” he said.

“Treasury should also consider the significant bureaucratic cost imposed on the CSLR by the AFCA, ASIC and the CSLR operator itself, who are together responsible for $17m in anticipated expenditure, or over 20 per cent of the total expected levies.”

The wider financial planning profession has been outspoken since the CSLR was first introduced that it has been left to cover as much as $135m of the compensation bill for the Dixon Advisory misconduct, despite its parent company still operating.

Originally published as Financial advisers slam CSLR levy increase to $77.9m as disproportionate and unfair