The Compensation Scheme of Last Resort (CSLR) says it has received over 200 claims for compensation relating to personal financial advice.
In a submission to the Senate economics references committee inquiry into wealth management companies, the CSLR detailed its thinking behind the collapse of companies such as Dixon Advisory.
The CSLR came into force in April 2024 and acts as a compensation source for consumers who have been impacted by poor financial misconduct. Compensation is available in circumstances where the company or provider has failed to pay a determination by the Australian Financial Complaints Authority (AFCA), typically because of insolvency.
It can pay up to $150,000 to eligible consumers for complaints relating to personal financial advice, securities dealing for retail clients, credit intermediation and credit provision.
Detailing specific claims regarding personal financial advice, it said it has received 202 claims of this nature which represent 80 per cent of all claims received by the CSLR to date. These related to matters such as misleading or deceptive advice, inappropriate advice regarding property, and advice that was misaligned to the client’s risk profile.
Of these, 90 have been processed which resulted in compensation payments of $8,950,118 to eligible complainants.
Breaking it down further, the CSLR said 202 claims related to 24 financial firms but specified that five firms had received 10 or more claims, including one which received 69 claims.
- Firm One (69 claims): Claims primarily involve misclassification of consumer risk profiles and incorrect categorisation of property as “defensive and growth”, resulting in overly aggressive risk profiles and lack of diversification. Additionally, there are recommendations for related entity products.
- Firm Two (18 claims): Claims focus on advice to establish self-managed superannuation funds (SMSFs) that are often not in the consumer’s best interest, particularly when balances are too low to be cost-effective. High-risk, geared property investments are also a concern.
- Firm Three (13 claims): Claims involve inappropriate advice to set up SMSFs with balances below recommended thresholds, leading to significant risks associated with geared property investments and lack of portfolio diversity. Note that several unpaid deeds of settlement for failure to provide ongoing advice are outside the CSLR’s scope.
- Firm Four (11 claims): Claims highlight overexposure to property within SMSFs, focusing on a single asset class without considering the consumer’s situation or associated risks.
- Firm Five (11 claims): Claims vary, including failure to provide ongoing advice or implement recommendations (generally under $10,000), inappropriate SMSF setup advice due to low balances, and instances of dishonest conduct, such as inducing unaffordable loans and improperly controlling consumer accounts.
At its inaugural industry forum in Sydney on 23 October, the CSLR said that it expects the upcoming 2025–26 levy attributed to personal financial advice to exceed the $20 million subsector cap.
According to the CSLR, the process of confirming the levy estimate is “complex and heavily dependent” on both the AFCA estimates of how many complaints will be resolved and proceed to the CSLR in FY26, and “the inclusion of any other large-scale firm failures”.
