FSC calls for per capita CSLR levy limit
The Financial Services Council (FSC) has recommended implementing a per capita limit per annum for financial advisers when it comes to the Compensation Scheme of Last Resort (CSLR) levy.
In its submission to the CSLR post-implementation discussion, the FSC made 35 recommendations on how it could be adapted going forward.
One of these centred on the introduction of a per annum cap on the per capita amount to provide certainty for advisers and reflect the declining number of advisers in the industry.
Currently, there is a $20 million subsector cap for the overall financial advice sector but not one detailing how much each adviser can pay individually.
In the year since the CSLR’s introduction in April 2024, the number of advisers has fallen from 15,609 to 15,544.
Over the same period, the levy for advisers has risen from $24.1 million in FY25 to $78 million in FY26 and is set to reach an expected $120 million in FY27, with 90 per cent of complaints to the CSLR focused on financial advice.
One reason for the substantial increase in FY27 is that there has been no allowance for the failure of United Global Capital (UGC) which is expected to make up 70 per cent of total claims during the period. With the majority of these being ruled in favour of the complainant, the average compensation amount stands at $145,000 per claim.
How much a licensee pays towards the levy is based on their number of advisers, which the FSC said disincentives them from growing their adviser numbers or taking on new entrants to the profession.
“Without a clear expectation of levy amounts, firms may struggle to budget appropriately, potentially leading to underestimation of liabilities or the need for unexpected adjustments. This unpredictability can also deter investment and expansion, as businesses are hesitant to commit resources when future obligations remain unclear.”
Therefore, the introduction of a per capita cap, the FSC said, will have numerous benefits, including limiting the cost of the scheme, encouraging it to function efficiently, and ensuring its future sustainability. It will also reduce the risk of high levies causing business failure, which itself could lead to potential CSLR claims via the contagion effect.
“On balance, the FSC considers a per capita limit on annual CSLR levies is appropriate until a risk-based funding model at the individual FSP level can be adopted. The FSC would be eager to work with Treasury on how a per capita limit may operate.
“This is an equitable and proportionate approach for the cap that would not unfairly advantage small or large businesses. Since the CSLR is imposed on the basis of the number of individual financial advisers employed by a licensee, the FSC sees such a cap as a simple way to ensure financial advice remains affordable.”
AUTHOR
Laura Dew
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