The Compensation Scheme of Last Resort today published its revised estimate for the compensation payments for the 2027 Financial Year – a staggering amount of $198 million, $190.3 million of which is attributed to the personal financial advice subsector.
‘’The revised estimate highlights the unsustainability of the compensation scheme,” said the CEO for Stockbrokers and Investment Advisers Association (SIAA), Maria Lykouras. ‘’The CSLR must be fundamentally re-designed. Now that the scheme is in its third year of operation, its shortcomings are obvious. Alarmingly, the estimate shows that the fees incurred to run the scheme in FY 2027 including AFCA fees exceed the entire personal financial advice subsector cap of $20 million.”
One of SIAA’s biggest criticisms is the impact on the scheme of counterfactual or ‘but for ‘ losses that cover investors’ unrealised profits. The scheme previously reported that about 80% of all amounts paid for by the CSLR to Dixon Advisory complainants are ‘but for’ losses.
‘’A total of $83, 497,000 in compensation is estimated to be paid to Dixon Advisory complainants in FY 27. If ‘but for’ losses are a large component of this amount, this highlights the extraordinary burden that losses based on foregone profits place on the scheme. The CSLR was never intended to underwrite investment risk or pay complainants hypothetical ‘but for’ gains,’’ Mrs Lykouras explained.
SIAA points out that the impact of the controversial ‘but for’ losses does not stop with Dixon complaints. The scheme has estimated payments of just under $130 million for ‘but for’ losses to investors in Shield who have been completely compensated for their capital losses by Macquarie. The scheme also estimates paying $40 million of ‘but for’ losses to investors in First Guardian who have been fully refunded for their capital losses by Netwealth.
“Compensating counterfactual outcomes extends beyond the role of a last-resort safety net. The scheme must be redesigned to remove the payment of ‘but for’ losses to improve its sustainability and ensure that it helps as many impacted consumers as possible be restored to their previous position by compensating them for their capital loss”, Mrs Lykouras concluded.
The massive levy blow out exceeds the personal financial advice subsector cap by over $120 million and will require the CSLR to ask the Minister to impose a special levy for the FY 2027 period. Treasury is currently considering the feedback to its consultation on reform options to support ongoing sustainability of the scheme that it undertook earlier this year. One of the issues raised by the consultation was how to respond to the levy blow outs impacting the scheme year after year.
ENDS
About the Stockbrokers and Investment Advisers Association (SIAA)
The Stockbrokers and Investment Advisers Association (SIAA) is the peak body representing Australia’s stockbroking and investment advice profession, supporting more than 8,000 industry professionals through its member firms and practitioner network. SIAA supports its members through advocacy, professional development, education and by fostering a strong, connected, and informed financial services community. Our members are market participants and wealth management firms that provide securities and investment advice, execution services and equity capital-raising for Australian investors, both retail and wholesale, and for businesses. Practitioner members are suitably qualified professionals who are employed in the securities and derivatives industry. SIAA members represent the full range of advice providers from full-service and online brokers to execution-only participants and they provide wealth advice and portfolio management services. SIAA members have over 5.2 million retail clients and over 130,000 wholesale clients.
Contacts:
Maria Lykouras, CEO
0467 773 218