A year of CSLR: Advisers can’t carry the costs forever

It isn’t surprising that the government decided to push last year’s launch of the Compensation Scheme of Last Resort (CSLR) forward a day to avoid April Fool’s – a tactic being employed once again this year in the form of US President Donald Trump’s so-called “Liberation Day”.

However, 12 months into the CSLR’s operation, it has become increasingly clear that the scheme should have kicked off a day earlier.

The collective outrage at the bill levied to the financial advice profession a year ago almost seems quaint now, with the invoice quickly escalating from $18.5 million for 2024–25 to $70.11 million for the upcoming financial year.

Considering terms like “progressively exploding disaster” and “existential threat” have been consistent descriptors of the scheme, it’s hard to believe how much worse the situation has gotten since they were first uttered.

Now the early projections for FY2026-27 are even worse as the full brunt of Dixon Advisory claims finally flows through to the CSLR, with the Financial Advice Association Australia (FAAA) expecting the levy to come in around the $120 million mark.

But this was always the concern, even if the scale even then wasn’t fully understood.

In those early days of CSLR handwringing, the retrospectivity of including Dixon cases was high on the list of issues – for good reason.

However, there was a feeling that even if that was the only thing that got fixed, the scheme could be at least somewhat manageable – not good, but survivable for advisers.

As things stand today, carving out Dixon would still be a huge help, but large-scale failures have proven to be a far more regular occurrence than anyone had predicted.

United Global Capital (UGC) is already going to make up the bulk of the next levy period at an estimated $44.57 million, while the ongoing Shield Master Fund and First Guardian collapses have the potential to be far more damaging.

At this stage, there is no guarantee that the fallout from either of these will make it to the CSLR, but there is also no guarantee they won’t.

Advice firm Venture Egg – whose director Ferras Merhi is back in Federal Court today – had as much as $440 million in client money invested across the two funds.

Considering the way things have progressed in recent years, there are almost certainly more of these on the way.

If the worst-case scenario plays out with both the known and unknown risk factors, it’s hardly farfetched to worry that the broader advice sector will once again have to pick up the tab.

Unless the scheme is fixed.

How likely is that, though? Considering neither of the inquiries into the CSLR managed to amount to anything substantial before the Prime Minister called the election and the government went into caretaker mode, it feels safe to rule out changes any time soon.

At this point, everyone knows the problems – including both sides of Parliament.

Submissions to the Treasury review have come from all manner of acronyms: FAAA, SIAA, SMSFA, MFAA, IFPA, NIBA – the list goes on.

Yet to be seen, however, is the submission from the CSLR itself.

Speaking with ifa earlier this year, the scheme’s chief executive, David Berry, said: “We will be making a very comprehensive submission, and we will be making it public as soon as we’re allowed to.”

However, ifa understands this won’t happen until Treasury releases submissions itself.

It all looks to be stuck in a holding pattern, even as both the outgoing Financial Services Minister Stephen Jones and his opposite number Luke Howarth have acknowledged the scheme must be fixed.

Yet advisers continue to be treated as though they are a never-ending resource that can cover the costs forever.

In Norse mythology, the beast Sæhrímnir is killed every night and cooked to feed both the gods and einherjar – those that have died in battle and are taken to Valhalla.

Every day, Sæhrímnir is resurrected to be eaten again the following night, providing sustenance indefinitely.

Unlike the great beast, as an already shrinking profession, eventually there won’t be anything left to take.