Jones announces CSLR review as advice sector levy hits $70m for FY25–26

Advisers are on the hook for an even bigger bill, with the estimated Compensation Scheme of Last Resort (CSLR) levy for 2025–26 more than tripling the sector cap as a result of determinations against collapsed firms United Global Capital (UGC) and Dixon Advisory.

The CSLR has released its initial levy estimate for the upcoming financial year, calculated along with independent external actuaries Finity, with the figure skyrocketing to a combined $77,975,000 across all sectors.

According to the CSLR, these funds will support the processing of 1,800 claims across both the pre-CSLR levy and the FY25–26 levy estimate, as well as compensation payments for 491 claims tied to the FY25–26 levy – marking a threefold increase in processing volume compared to FY24–25.

The breakdown across industries is bad news for financial advisers, with the vast majority of $70.11 million being attributed to the subsector.

In contrast, credit provision services will cover $2.80 million, credit intermediaries will pay $2.72 million and $2.34 million is attributed to the securities dealing subsector.

In a separate statement on Friday, Minister for Financial Services Stephen Jones announced the Albanese government is directing the Treasury to undertake a comprehensive review of the CSLR.

“This is all about ensuring the scheme remains sustainable into the future for consumers and for the industry,” Jones said.

While stressing his focus on consumers, Jones said Australians also need access to affordable high-quality financial advice, and as such the review will assess whether the scheme is meeting its objective in a way that is “sustainable for both companies and consumers”.

“Ensuring the scheme is sustainably funded will be an important focus of the review,” Jones said.

The CSLR flagged that the estimated levy was anticipated to exceed the subsector cap of $20 million in October at its inaugural industry forum in Sydney.

Speaking with ifa following the October announcement, Phil Anderson, Financial Advice Association Australia general manager policy, advocacy and standards, said he wouldn’t be surprised if the advice sector levy surpassed the $20 million cap.

However, even Anderson’s worst-case scenario at the time was $50 million – still $20 million shy of the actual estimate released on Friday.

The Australian Securities and Investments Commission is only authorised to levy up to $20 million at a subsector level.

“The amount above $20 million will require funding via a special levy with formal notification of this requirement to be made to the Minister for Financial Services early in FY26,” the CSLR said.

“Consistent with the legislation, CSLR will complete a revised levy estimate for FY26. The consideration of any special levy will be determined by the minister and subject to separate parliamentary approval.”

In a statement, CSLR chief executive David Berry said the “key contributors driving the expected number of claims” are UGC and Dixon Advisory.

Indeed, 92 per cent of expected claims paid for FY25–26 are from the two failed firms.

While the bulk of the focus around the CSLR has been on Dixon Advisory, the impact of UGC on the FY25–26 estimate is far greater at $44.57 million compared with $12.25 million for Dixon.

Importantly, the estimate is based on a range of actuarial assumptions around the ultimate number of UGC complaints that the Australian Financial Complaints Authority (AFCA) receives – UGC must remain a member until at least 31 May 2025 – the speed with which AFCA processes complaints, and the average claim size of the complaints.

Even more stark is the contrast with all other financial advice claims, which total just $2.77 million for the third levy period – less than AFCA fees for processing UGC and Dixon complaints ($3.6 million and $3.2 million, respectively).

Combined, AFCA fees account for $8 million of the $70.11 million attributed to financial advice.