‘The government needs to sort this out’: CSLR must be top priority for next government

As pre-election chatter heats up, WT Financial Group chief executive Keith Cullen said that whoever takes power later this year urgently needs to address the Compensation Scheme of Last Resort (CSLR) as the mounting costs could put the future of the profession in jeopardy.

Released in January, the CSLR’s initial levy estimate for the upcoming financial year, calculated along with independent external actuaries Finity, came out to $77,975,000 across all sectors.

“Where we sit today, this $78 million is not the half of what it will be the following year because it is not the Dixon matters creating this $78 million. It’s one of these other debacles,” Cullen said.

While Dixon Advisory has overwhelmingly been blamed for the skyrocketing CSLR levy, Finity’s estimates have indicated that United Global Capital (UGC) could impact the FY2025–26 levy three times as much.

The CSLR has estimated that the total number of UCG-related complaints will be 346, with 307 of those being paid in FY25–26, though, speaking with ifa earlier this month, CSLR chief executive David Berry said this all depends on when the Australian Financial Complaints Authority (AFCA) will cease UGC’s membership so people can no longer lodge complaints.

“Now we don’t know what that actual number will be. It’s what the actuaries, using their experience with other modelling they’ve done, with other circumstances and with Dixon, that’s the number they’ve come up with. I think it’s unlikely we’re going to see a huge increase,” Berry said at the time.

While the CSLR undoubtedly impacts current financial advisers, Cullen noted that, in its current form, the CSLR is also acting as a massive deterrent for potential new entrants, a challenge that could cripple the profession in the future as it continues its struggle to maintain the number of advisers it has.

“I mean 5, 6, 7, 8, $9,000 on top of an ASIC levy at $2,800 or thereabouts is, it’s a big disincentive to start growing people. They’re massive taxes to be borne by a very small profession,” he said.

“Welcome to the profession. Here’s the bill for 10 grand.”

CSLR should be restricted to capital losses

Recently there has been a growing discourse regarding whether AFCA’s use of “but for” determinations, which includes hypothetical missed gains, should be covered under the CSLR.

While this is of concern, Cullen argued that this is more a discussion around whether the CSLR is operating appropriately and as intended.

“This is not a discussion about changing the AFCA rules, although that is a discussion that we should have at some point in time, now is not the time for it,” he said.

“This is a discussion about whether this should be a genuine scheme of last resort, which is what we all think it should be. I think you’ve seen concessions in the language that’s coming out of both the government and also the opposition at the moment and that’s just recognising this should cover capital losses, it should be restricted to capital losses.”

At an event in Sydney earlier this month, Jones acknowledged that the CSLR is “not about guaranteeing investment returns”, stating that the intention of the scheme is to ensure genuine victims have access to some redress.

Speaking with ifa later that same week, shadow financial services minister Luke Howarth agreed that the “but for” issue is of key concern, arguing that, in its current form, the CSLR isn’t acting as a scheme of “last resort”.

With the impending election top of mind, the shadow minister said in a statement in January, “The Coalition will act quickly to fix the CSLR and get costs down for advisers.”

As the possibility of a special levy looms, Cullen argued that addressing the faults of the CSLR needs to be a top priority to ensure the future of the advice profession.

“If the government and the opposition are serious about dealing with it and serious about us having a healthy, vibrant advice community that can assist Australians in their run-up to retirement in particular, we need to know what those numbers are,” he said.

Cullen added: “So, the government needs to sort this out. Regardless of who forms government, that needs to be sorted out urgently.”

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