Good advisers punished for sins of others

OPINION

Last week’s confirmation by the Compensation Scheme of Last Resort (CSLR) that its new estimate levy estimate had far outstripped the personal financial advice sub-sector cap caused considerable concern prompting self-licensed adviser, Andy Semple to write the following analysis arguing the CSLR is a disaster and that small advice firms are being punished for sins they never committed.

When the Compensation Scheme of Last Resort (CSLR) was created, it sounded like a sensible idea. Victims of financial misconduct would finally get some compensation when the firm that ripped them off couldn’t (or wouldn’t) pay. The financial services industry would foot the bill through levies. Simple.

Fast forward a couple of years and the scheme has turned into something else entirely: a runaway cost machine that is hammering small, honest advice businesses while the real culprits — and some major parts of the industry — largely escape.

What Was Supposed to Happen

The CSLR was designed to pay up to $150,000 to consumers who had a successful AFCA determination but couldn’t get the money because the adviser or firm had gone broke or vanished. It covers personal financial advice, certain credit activities, and securities dealing.

To keep things “fair”, the law included a $20 million annual cap on what the personal financial advice sub-sector could be asked to pay. Anything above that would trigger a special levy.
That was the theory.

In reality, the cap has become almost meaningless.

How Bad It Has Gotten — A Real Example

Take a typical small Financial Services Provider (FSP) with just five advisers on the register. This is a genuine, independent business — not some big dealer group or product manufacturer.

Here’s what their CSLR levies have looked like:

• 2024-25: Around $8,600
• 2025-26: Annual levy climbed to nearly $10,000
• Combined 2025-26 special + 2026-27 annual: One invoice hit $23,549

That’s already almost three times what they paid in the first year — and we’re not even at the end of the story.

The latest revised estimate for the current levy period (FY2026–27) has exploded to $198.1 million total for the scheme, with $190.3 million landing on the personal financial advice sub-sector alone. That is nearly ten times the original $20 million cap.

Another massive special levy is now inevitable.

The Unfairness Is Staggering

Here’s the part that makes honest operators furious.

The big claims driving these costs come from well-known disasters:

• Dixon Advisory (the final wave of claims is still hitting)
• Shield
• First Guardian Master Fund

These were large-scale failures. Many involved complex products, aggressive marketing, and significant governance breakdowns.

Yet it is the small, compliant advice firms — the ones who had nothing to do with these collapses — that are being slugged hardest through the levy system. A small FSP with five advisers is now staring down the barrel of potentially $25,000 to $40,000+ in CSLR costs in a single year. That’s not a levy anymore. That’s a serious threat to their viability.

Meanwhile, Managed Investment Scheme (MIS) issuers — the people who actually create and promote many of the products that have caused huge consumer losses — still largely sit outside the main CSLR levy framework. Industry groups have been begging the government to bring them in. So far, the answer has been no.

So we have a situation where:

• Small advice firms that give personal advice get hammered.
• The product manufacturers and MIS issuers who created the toxic products often don’t pay their fair share.
• The government keeps coming back for more special levies because the original modelling was hopelessly optimistic.

This Is Not Sustainable — It’s Diabolical

The CSLR was meant to be a last-resort safety net. It has become a recurring tax on the very people who are trying to do the right thing.

Every time there’s another big failure (or the processing of old failures speeds up), the bill gets sent to the broader advice sector — including tiny practices that never advised on those products and had no involvement in the misconduct.

The latest numbers are brutal. A sub-sector that was supposed to be capped at $20 million is now being asked to cover nearly $190 million. That is not a tweak. That is a complete breakdown of the original design.

And the worst part? The small firms that are copping the biggest relative hit are the ones least able to absorb it. They don’t have deep pockets. They don’t have massive product manufacturing revenue to cross-subsidise. They’re just trying to look after their clients while the system piles cost after cost on their heads.

What Happens Next?

For the current FY2026–27 period, small FSPs should brace for another very large invoice. Between the capped annual component and the inevitable special levy (even if it’s spread a bit more broadly this time), many will likely face $25,000 – $40,000+ in total CSLR costs — possibly more if their metrics are on the higher side.

This is no longer about “a bit of extra cost”. For many small advice businesses, this is becoming an existential threat.

The CSLR was supposed to protect consumers and maintain trust in the financial system. Right now, it is doing the opposite for the honest operators who actually make up the majority of the advice profession.

It’s time to call this what it is: a diabolical mess that punishes the innocent while the real problems remain unaddressed.

Small advice firms didn’t cause Dixon, Shield or First Guardian. They shouldn’t be the ones paying the heaviest price.