CSLR levy surge demands urgent reform to fix unfair funding burden
The revised estimate for the FY2027 CSLR levy period released today plainly underscores the urgent need to address the gross inequities in the CSLR funding model, particularly the disproportionate burden being borne by the retail financial advice profession, says the SMSF Association.
The FY27 revised levy estimate for the retail financial advice subsector now stands at $190.3 million, $63.4 million higher than the initial levy estimate of $126.9 million and nearly five times the retail financial advice subsector cap of $20 million. This confirms the unacceptable cost burden being placed on Australia’s financial advisers, further pushing up the cost of advice, and again demonstrates that the way the scheme is funded needs critical reform.
In fact, unpaid AFCA fees from investigating these claims totalled more than $18.5 million in the fourth levy period, which itself nearly exhausts the subsector cap of $20 million. This figure alone clearly demonstrates the steep increase in unpaid claims since the commencement of the CSLR.
SMSF Association’s CEO Peter Burgess, says, “Consumers should have access to financial compensation where they suffer financial loss from poor or negligent financial advice or product failure. But holding a sector accountable for the failures of firms that intentionally prioritise profit to the detriment of their clients is both unsustainable and unjust.
“It also demonstrates that the current design is creating moral hazard, contributing to the increasing scale of potential CSLR liabilities being borne by the retail financial advice sector,” he says.
As a short-term solution, Mr Burgess says that the Government must share responsibility for funding the shortfall, given it is the only stakeholder with the power to set, maintain and enforce the regulatory settings that participants must operate within.
Immediate reform is also needed.
This includes ensuring CSLR claims are paid on a capital loss basis. The CSLR is a scheme of last resort and should operate as such, focusing on restoring consumers to their original capital position.
The managed investment scheme (MIS) sector must also be added as a new subsector to fund the primary CSLR levy, reflecting the material role the sector plays as a key contributor to these large-scale losses. This levy should apply to all MISs. There is no justification for segmenting the subsector by risk, as this would be inconsistent with how the levy is applied to current leviable subsectors.
“Most importantly, the policy focus must turn to preventing these large-scale failures that result in significant consumer financial detriment from occurring in the first place, not just how losses are funded after the harm has occurred,” Mr Burgess concluded.