CSLR pain to intensify as FAAA projects $125m future levy

In announcing the levy for FY25–26, Compensation Scheme of Last Resort (CSLR) chief executive David Berry said the “key contributors driving the expected number of claims” are UGC and Dixon Advisory.

Indeed, while 92 per cent of expected claims paid for FY25–26 relate to the two failed firms, the impact of UGC on the FY25–26 estimate is far greater at $44.57 million compared with $12.25 million for Dixon.

As previously broken down, the Australian Financial Complaints Authority (AFCA) is not simply ignoring complaints lodged against Dixon Advisory; however, the determinations it makes over the FY25–26 period are largely going to be covering the backlog attributed to the pre-CSLR period that Australia’s 10 largest financial institutions have already paid.

Specifically, the complaints authority, which has a separate team working on Dixon Advisory, will aim to get through the 1,638 complaints that were submitted by 7 September 2022.

“AFCA’s focus will be, in regard to Dixon, all the pre-CSLR complaints, so we won’t see much of the post-September 2022 complaints,” Berry told ifa.

“If they manage to really ramp up and get through the pre-CSLR faster, it means they then start engaging on the post-September 2022 work. Those claims could then come through and that then brings forward claims that we were expecting in FY27 into FY26. We probably won’t have a good view of that come May or June this year, but that’s something that could impact it.”

Looking beyond this upcoming third levy period, Phil Anderson, Financial Advice Association Australia (FAAA) general manager for policy, advocacy and standards, said on a webinar on Tuesday that Dixon will retake the focus in FY26–27.

“There could be $103 million in claim costs for Dixon Advisory clients, and $105–106 million total claim costs plus AFCA fees of $14 million and $3.5 million of additional fees. This is all on the assumption that we don’t see any further material collapses,” Anderson said.

“All up, we could see $123 million in the 26–27 year, and that’s on top of the $70 million that’s already been disclosed. The financial advice sector is only required to pay $20 million in each year. What happens above is up to the minister, and we will be seeking that the minister does not charge any more than $20 million, but he has the power to do so.”

Across the two financial years, the cost of the CSLR levy to the financial advice sector could be as much as $193 million, which represents $12,500 per adviser.

Anderson also noted that there is a real chance that the Dixon mess drags on into the FY27–28 period.

This is in line with what Berry told ifa is a more likely scenario, in which AFCA falls short of the number of determinations it has projected it can complete, leaving some pre-CSLR complaints yet to be completed by the end of FY25–26.

“That won’t really impact the FY26 levy, but it does mean there’s a chance that the FY27 levy won’t see the end of Dixon,” he added.

In an FAAA article, also published on Tuesday, Anderson explained that the cost of AFCA processing the claims is also set to grow, based on the CSLR actuarial report.

“The report estimates that the cost of AFCA processing each claim will increase substantially from an estimate of around $12,450 in the 2024–25 estimate to $21,334 per claim in the 2025–26 year,” Anderson said.

“This is a huge increase and one that AFCA is yet to publicly respond to. This is really bad news for financial advice if it turns out to be correct. Not only will the advice profession need to pay for the AFCA fees for all the post-CSLR Dixon Advisory cases, all the UGC cases and any other financial advice cases; if this significant jump in AFCA fees occurs, then it puts the pre-CSLR total cost at risk.”

The only positive news coming out of the actuarial report, which Anderson said the FAAA was “desperately trying to find”, was that the three-month period that the government covered ended up being even less than expected, leading to a $1.3 million credit towards the financial advice sector’s bill.

“There were no CSLR claims paid in the year that the government was responsible. Isn’t it remarkable that the government committed to pay for the first 12 months of claims and operating costs, however modified the law in a way that led to them only being responsible for three months – and then, in that period, there was not even one claim paid!” Anderson said.

“The $4.8 million that the government paid for the three-month period in the 2023–24 financial year is paltry in comparison to the $70 million that the advice profession is facing for the 2025–26 year, and the potential $123 million that it is facing for the 2026–27 financial year.

“I wonder if the architects of this outcome feel pleased with what they achieved, or embarrassed. One can only hope that they have a conscience.”